Monday Watch

Today's Headlines 

Bloomberg:

• 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 last. Chinese 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.

• Global Asset Market Prices Aren't Right: India's Rajan. (video)

• Haven Demand Boosts Yen on China Woes. (video)

• 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... 

• Fed Appears to Hold Line on Rate Plan by Jon Hilserrath and Ben Leubsdorf. Federal Reserve officials emerged from a week of head-spinning financial turbulence largely sticking to their plan to raise U.S. interest rates before the end of the year.

• 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.

• The Middle East Diaspora Descends on Europe. They are fleeing the war in Syria—and turmoil in Iran, Afghanistan and beyond.

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.

MarketWatch.com:

• Here’s why Elon Musk fears the ‘robocalypse’.

Zero Hedge:

• Chinese Stocks Slump After "Arrest-Fest", Yuan Strengthens Most In 9 Months, Goldman Cuts Outlook. (graph)

• Policy Confusion Reigns As China Caps Muni Debt, Uncaps Bank Debt, And Bad Loans Soar.

• Why Devaluing The Yuan Won't Help China's Economy. (graph)

• Black(er) Monday Looms: Dow Futures Down 220 After J-Hole Speeches & China Fold. (graph)

• Jackson Hole Post-Mortem: "Door Still Fully Open To September Lift Off".

• A Very Unexpected Statement From A Central Banker: "We Are Merely Reacting To A Situation We Did Not Create". (graph)

• Malaysia Bans The Color Yellow As Protests Swell Into The Hundreds Of Thousands. (pic)

• JPMorgan: "Nothing Appears To Be Breaking" But "Something Happened".

• Sanders Surges As 1 Million Fake Hillary Followers Exposed.

• Leveraged Financial Speculation In The US At A Familiar Peak, Once Again. (graph)

• Citigroup Chief Economist Thinks Only "Helicopter Money" Can Save The World Now. (graph)

• Austrian Economics Is Now Equivalent To Terrorism Thanks To Latest Islamic State "Gold Standard" Propaganda Clip. (video)

• The Value-At-Risk Fiasco.

Business Insider:

• 5 facts that explain the global impact of China's impending slowdown.

• Donald Trump may be dooming the GOP with a 10% chunk of the electorate.

• Hillary Clinton’s support in a key, early state is suddenly crumbling.

• CHARTS: The extreme positioning that led to the mammoth squeeze in crude oil last week.

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.

Politico:

• 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.

• Asia is a bigger problem for Europe than the US. China’s market rumbles highlight the limits of a more aggressive ECB, writes Stephanie Flanders.

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%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• 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.

Weekly Outlook

Week Ahead by Bloomberg. 

Wall St. Week Ahead by Reuters.

Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Fed rate hike worries, China bubble-bursting fears, Asian currency concerns, commodity weakness, technical selling and European/Emerging Markets/US High-Yield debt angst. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.

Today's Headlines

Bloomberg: 

• On Second Thought, China Slowdown Will Hit Global-Growth Outlook. China’s deepening struggles are starting to make a bigger dent in the global economic outlook. Moody’s Investors Service on Friday cut its 2016 growth forecast in Group of 20 economies to 2.8 percent, down 0.3 percentage point from the company’s call less than two weeks ago. China is projected to grow 6.3 percent in 2016, down from 6.5 percent previously, the credit-rating company said in a report. Citigroup Inc. last week pared its projection for world growth in 2016 to 3.1 percent from 3.3 percent, the third straight time the bank has cut the forecast. Recent Chinese data including numbers on credit expansion and fixed-asset investment suggest a sharper slowdown this quarter than Moody’s previously judged, while Citigroup said the worsening outlook was driven by “significant” downgrades for China, the euro area, Japan and several other major countries. Economists in a Bloomberg survey earlier this month gave a median estimate of 3.5 percent global growth in 2016, compared with 3.6 percent in the July survey. “We’re seeing evidence that the slowdown is broader than expected” in China, said Marie Diron, a London-based senior vice president at Moody’s and one of the report’s authors. “It’s long been clear that there’s a slowdown in the manufacturing and construction sector, but the service sector was more resilient. That’s still the case, but we’re seeing some signs of weakness in the labor market.”

• Uh-oh, Canada. China Pales as a Risk to U.S. Growth. The U.S. neighbor to the North could cool off momentum. Canada probably experienced a technical recession in the first half of 2015, and the fact that the No. 1 U.S. export market is in a slump could spell bad news for growth in the world's biggest economy. Canada's gross domestic product contracted for a second quarter in the three months through June, a Sept. 1 report will show, according to almost all economists in a Bloomberg survey. The economy probably shrank by 1 percent, even worse than the 0.6 percent first-quarter drop. "When Canada hurts, U.S. exporters do, too," Bricklin Dwyer, an economist at BNP Paribas in New York, wrote in an Aug. 27 note to clients titled "Canada (not China) matters more."   

• India's Rajan Says Prices Aren't Right in Global Asset Markets. Reserve Bank of India Governor Raghuram Rajan has a message for investors around the world: Get ready for potential declines in asset prices. That’s because unprecedented easing by global central banks has helped drive up prices, Rajan said in a Bloomberg Television interview Friday at the Kansas City Federal Reserve’s annual symposium in Jackson Hole, Wyoming. “Those might be the sources of fragility -- that we’ve tried doing too much,” Rajan said. “And as a result, in certain asset markets, prices aren’t correct. And they may correct. Now whether that happens smoothly or that happens in more volatile fashion, I think is anybody’s guess.” The comments come a decade after Rajan, who at the time was the International Monetary Fund’s chief economist, presented a paper at Jackson Hole that proved prescient in warning that a global financial crisis could be triggered by little-understood financial products. Two years later, that crisis scorched the world economy. More recently, Rajan’s criticism has shifted to the years of unprecedented monetary stimulus by central banks in the world’s richest countries. He’s spoken of the dangers of competitive monetary easing and called for greater coordination among policy makers. 

• All of That Dollar Borrowing in Emerging Markets Looks Like It's Been One Giant Carry Trade. Since the 2008 financial crisis, companies across emerging markets have been borrowing dollars and converting them into local currencies as part of a massive carry trade. This practice has helped U.S. dollar shadow banking go global as the effects of near-zero U.S. interest rates seep into all corners of the world economy. That's the main finding of a new report released Thursday by the Bank for International Settlements, an institution in Basel, Switzerland, known as the central bank for central banks.

• European Bonds May Extend Losses as Sovereign-Debt Supply Rises. After a volatile week in global markets, traders may be reluctant to increase their holdings of euro-area government bonds as debt supply surges and before the European Central Bank responds to the turmoil kindled in China. Investors last week turned pessimistic on German bonds, sending the 10-year bund yield rising the most in almost three months. Spanish and Italian securities also declined. BNP Paribas SA said it’s too soon to re-enter positions that bet on prices in sovereign-debt markets rising. Austria, Belgium, Germany, Spain and France all will auction securities next week, which tends to suppress prices.

• Fischer Sees Good Reason to Believe U.S. Inflation Will Rise. Federal Reserve Vice Chairman Stanley Fischer said the U.S. central bank should not wait until it reaches its inflation goal before raising interest rates and voiced confidence price pressures would accelerate. “Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further,” Fischer said Saturday at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming. “With inflation low, we can probably remove accommodation at a gradual pace,” he said without specifying when the Fed should start. “Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.” The Fed is monitoring the fallout for the U.S. from stock market turmoil spurred by concerns about a slowdown in China. Investors bet that could persuade the U.S. central bank to delay raising rates. Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said it suggested that Fischer wants to get going on rate hikes. “It sounds like Fed Vice Chairman Fischer is getting an itchy trigger finger when it comes to lifting rates,” he said in a note to clients. ’’Today’s news represents an important change possibly in the leadership of the Fed’s position, which clears the way for action on Sept. 17.’’

• Jackson Hole Paper Backs View of Fed Liftoff 'Sooner,' Not Later. U.S. is "nearing" point at which diminishing slack will lead to upward inflation pressure, according to a paper presented at Fed's Jackson Hold symposium that seems to support rate liftoff "sooner rather than later." "We can be confident based on our slack measures that inflation will soon be rising," economists Jon Faust of John Hopkins University and Eric Leeper from Indiana University wrote in paper. Fed policy "could easily devolve into regular goalpost moving" without clearer framework for applying a new approach into deliberations, they wrote.  

• Fischer Keeps Fed Liftoff Options Open as October Comes in Focus. Federal Reserve Vice Chairman Stanley Fischer left open the option of an interest-rate increase next month while two other Fed officials raised the prospect of an October liftoff. Fischer was the most senior Fed official to speak on Friday as policy makers debated what market turmoil means for the U.S. during a barrage of live television interviews at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming. European central bankers will address the conference on Saturday, providing an international perspective of market convulsions and slower Chinese growth during a panel on global inflation, in which Fischer will also take part.

• Fed, ECB, BOE Officials All Say They See Inflation Rising. Stronger growth will pull inflation higher in the U.S. and Europe, according to three top central bankers who voiced confidence that their regions will escape from headwinds that are keeping inflation too low. Federal Reserve Vice Chairman Stanley Fischer joined European Central Bank Vice President Vitor Constancio and Bank of England Governor Mark Carney Saturday on a panel at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming, dedicated to discussing inflation dynamics. Their optimism has not been shared up until now by investors, trading in inflation-protected bonds shows.

 Wall Street Journal: 

• Foes Try New Ways To Attack Obama’s Iran Nuclear Deal. Republicans plan votes on new Tehran sanctions as Obama moves to lock up support to implement accord. Capitol Hill opponents of the landmark Iranian nuclear accord are devising a Plan B to ratchet up pressure on Iran as President Barack Obama moves closer to locking up the support needed to implement the deal.

• Iowa Poll Shows Bernie Sanders Closing In on Hillary Clinton.

• For China, a Plunge and a Reckoning. In today’s interwoven world, the stock-market crisis should spur Beijing to prefer compromise to bullying.

MarketWatch.com:  

• ‘Death cross’ patterns spread like a bearish virus.

Fox News:

• Suspect arrested, charged in killing of Texas county sheriff's deputy. (video) Authorities have charged a 30-year-old man with capital murder, after they say he ambushed a Texas county sheriff’s deputy at a suburban Houston gas station in an attack motivated by "absolute madness."

CNBC:

• A 'perfect storm' for Chinese President Xi Jinping. (video) The yuan, China's market, and global confidence in Beijing are all dropping. It's not an easy time to be the leader of the world's second-biggest economy.

Zero Hedge:

• Here's Why The Markets Have Suddenly Become So Turbulent. (graph)

• Lagarde: "China's Slowdown Was Predictable, Predicted"... Yes, By Everyone Except The IMF. (graph)

• Apple(AAPL) "Channel Checks" Paint A Very Gloomy Picture.

• This Is What Happened The Last Time Malaysia Faced A Currency Crisis. (graph)

• What Bill Dudley's Hedge Fund Advisors Told Him About A September Rate Hike.

• What The Yen Might Reveal.

• "Rough Summer" For Small Caps Set To Continue. (graph)

• US Debt In The Age Of Unrestrained Central Banking. (graph)

• Nassim Taleb's Fund Made $1 Billion On Monday; This Is How The Other "Hedge" Funds Did.

• Why The Recurring Economic Crises?

• Here's How Long Saudi Arabia's US Treasury Stash Will Last Under $30, $40, And $50 Crude. (graph)

• All Of Our Hopes & Dreams Come Down To 0.25%.

• These Four Currency Pegs Are Most Likely To Fall. (graph)

• "No Recovery For You!" Brazil Officially Enters Recession, Goldman Calls Numbers "Disquieting". (graph)

• Weekend Reading: Just A Correction, Or Something Else.

• Biggest Short Squeeze Since 2008 Bank Bailout And Epic VIX Rigging Sends Stocks Green For The Week. (graph)

Business Insider:

• REPORT: The FBI put its 'A-team' on the 'extremely serious' Hillary Clinton email probe.

• 7 takeaways from Vanity Fair's 1990 Profile of Donald Trump.

• There's another Chinese market growing explosively — and Beijing wants to take control before it 'blows up'.

• And you thought wages in America were bad ... (graph)

• Jeb clearly had the worst week in Washington.

• China is taking charge of a key element in Iran's nuclear deal.

NY Times:

• Zombie Factories Stalk the Sputtering Chinese Economy. Changzhi and its environs are littered with half-dead cement factories and silent, mothballed plants, an eerie backdrop to the struggling Chinese economy. Like many industrial cities across China, Changzhi, which expanded aggressively during the country’s long investment boom, has too many factories and too little demand. That excess capacity, many economists indicate, will have to be eliminated for the Chinese economy to return to healthy growth.

Reuters:

• China crisis covers tracks of Japan. As China's stock markets have lurched wildly, seeding dramatic falls across the world, some have drawn parallels with the global financial crisis of 2008 or the Asian version a decade earlier. They are weak comparisons. The abrupt end of Japan's boom in the 1990s, complete with stock crash and property bust, offers the most striking similarities, and the most valuable lessons.

• Half of UK manufacturers worried by China, some review plans - EEF. Just under half of British manufacturers are worried by the possibility of a sharp slowdown in China's economy and one in ten are reviewing their business plans, a survey from an industry group showed on Sunday.

Telegraph:

• If we have a Lehman moment, the West must share blame with China. Black Monday happened because of drastic and ultimately unsustainable measures taken by both Chinese and Western policymakers.

Xinhua:

• China Regional Debt Surges 34% in 18 Months. China's local governments had 24 trillion yuan ($3.8 trillion) of outstanding debt at the end of last year, up 34% from June 2013. The regional authorities had 15.4 trillion yuan of debt that they have to repay and another 8.6 trillion yuan of contingent liabilities, Xinhua said in a report citing a bill the National People's Congress approved. That compares with 17.9 trillion yuan of debt they had at the end of June 2013, according to an official audit. The top legislature approved the 16 trillion yuan regional debt quota for this year. The approval signals China has initiated quota-management for local debt, and has put a "ceiling" for authorities' fund raising, the official news agency said. China's local debt risk "is overall under control, though some regions faces relatively high debt risks," Xinhua said.

Market Week in Review

• S&P 500 1,988.77 +.91%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,988.77 +.91%

• DJIA 16,643.01 +1.11%

• NASDAQ 4,828.32 +2.60%

• Russell 2000 1,162.91 +.53%

• S&P 500 High Beta 30.46 +2.95%

• Goldman 50 Most Shorted 125.36 +4.34% 

• Wilshire 5000 20,766.01 +.88%

• Russell 1000 Growth 971.92 +1.53%

• Russell 1000 Value 954.80 +.27%

• S&P 500 Consumer Staples 487.80 -.32%

• Solactive US Cyclical 121.56 +. 70%

• Morgan Stanley Technology 1,022.02 +2.49%

• Transports 7,908.66 +.47%

• Utilities 572.21 -4.26%

• Bloomberg European Bank/Financial Services 108.50 +.74%

• MSCI Emerging Markets 33.72 +5.66%

• HFRX Equity Hedge 1,152.19 -3.46%

• HFRX Equity Market Neutral 1,011.41 -.23%

Sentiment/Internals

• NYSE Cumulative A/D Line 227,557 -.55%

• Bloomberg New Highs-Lows Index -317 +723

• Bloomberg Crude Oil % Bulls 35.42 +45.22%

• CFTC Oil Net Speculative Position 210,564 -6.8%

• CFTC Oil Total Open Interest 1,688,731 +.75%

• Total Put/Call 1.28 -23.81%

• OEX Put/Call .74 -73.94%

• ISE Sentiment 79.0 +12.86%

• NYSE Arms 1.06 -63.32%

• Volatility(VIX) 26.05 -7.06%

• S&P 500 Implied Correlation 60.01 +3.57%

• G7 Currency Volatility (VXY) 10.16 +5.94%

• Emerging Markets Currency Volatility (EM-VXY) 11.62 +1.93%

• Smart Money Flow Index 16.764.56 -1.80%

• ICI Money Mkt Mutual Fund Assets $2.695 Trillion +.34%

• ICI US Equity Weekly Net New Cash Flow -$5.204 Billion

• AAII % Bulls 32.5 +21.2%

• AAII % Bears 38.3 +14.8%

Futures Spot Prices

• CRB Index 1917.10 +3.01%

• Crude Oil 45.36 +12.7%

• Reformulated Gasoline 1551.55 -1.57%

• Natural Gas 2.72 +1.19%

• Heating Oil 157.65 +7.95%

• Gold 1,133.50 -2.24%

• Bloomberg Base Metals Index 145.78 +.42%

• Copper 233.80 +2.09%

• US No. 1 Heavy Melt Scrap Steel 210.67 USD/Ton unch.

• China Iron Ore Spot 56.04 USD/Ton -.11%

• Lumber 237.10 -3.34%

• UBS-Bloomberg Agriculture 1,017.42 -.2%

Economy

• ECRI Weekly Leading Economic Index Growth Rate -.9% -50.0 basis points

• Philly Fed ADS Real-Time Business Conditions Index .1913 -3.57%

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 126.21 -.03%

• Citi US Economic Surprise Index -7.5 +10.7 points

• Citi Eurozone Economic Surprise Index 14.6 -2.3 points

• Citi Emerging Markets Economic Surprise Index -9.6 -1.0 point

• Fed Fund Futures imply 62.0% chance of no change, 38.0% chance of 25 basis point hike on 9/17
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.61 +39.55%

• US Dollar Index 96.09 +1.37%

• Euro/Yen Carry Return Index 141.84 -2.32%

• Yield Curve 147.0 +5.0 basis points

• 10-Year US Treasury Yield 2.18% +14.0 basis points

• Federal Reserve's Balance Sheet $4.436 Trillion -.29%

• U.S. Sovereign Debt Credit Default Swap 16.28 +1.72%

• Illinois Municipal Debt Credit Default Swap 253.0 +1.75%

• Western Europe Sovereign Debt Credit Default Swap Index 22.34 -5.58%

• Asia Pacific Sovereign Debt Credit Default Swap Index 80.11 -1.37%
  

• Emerging Markets Sovereign Debt CDS Index 278.84 -15.39%
  

• Israel Sovereign Debt Credit Default Swap 68.69 -2.22%

• Iraq Sovereign Debt Credit Default Swap 736.50 -1.33%

• Russia Sovereign Debt Credit Default Swap 372.80 -11.2%

• iBoxx Offshore RMB China Corporates High Yield Index 116.79 -1.45%

• 10-Year TIPS Spread 1.62% +8.0 basis points

• TED Spread 27.25 -4.0 basis points

• 2-Year Swap Spread 15.25 -7.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -21.25 -3.25 basis points

• N. America Investment Grade Credit Default Swap Index 79.21 -3.53%

• America Energy Sector High-Yield Credit Default Swap Index 1,872.0 +.06%

• European Financial Sector Credit Default Swap Index 81.20 -3.0%
  

• Emerging Markets Credit Default Swap Index 344.58 -2.94%
  

• CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 101.0 unch.

• M1 Money Supply $3.039 Trillion -.31%

• Commercial Paper Outstanding 1,049.70 -.70%

• 4-Week Moving Average of Jobless Claims 272,500 +1,000

• Continuing Claims Unemployment Rate 1.7% unch.

• Average 30-Year Mortgage Rate 3.84% -9 basis points

• Weekly Mortgage Applications 412.70 +.24%

• Bloomberg Consumer Comfort 42.0 +.9 point

• Weekly Retail Sales +1.70% unch.

• Nationwide Gas $2.51/gallon -.12/gallon

• Baltic Dry Index 905.0 -8.95%

• China (Export) Containerized Freight Index 833.25 -1.32%

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 20.0 -20.0%

• Rail Freight Carloads 278,972 +.91%

Best Performing Style

• Large-Cap Growth +1.1%

Worst Performing Style

• Small-Ca Value -.5%

Leading Sectors

• Oil Service +9.6%

• Semis +5.5%

• Biotech +3.0%

• Alt Energy +2.9%

• Computer Hardware +2.8%

Lagging Sectors

• Airlines -2.3% 

• REITs -3.3%

• Homebuilders -4.8%

• Utilities -4.9%

• Gold & Silver -6.3%

Weekly High-Volume Stock Gainers (14)

• CAM, GAS, MOV, BBY, DY, BEAT, ANF, BRCD, GB, ACOR, GES, HRTX, NMBL and OSK

Weekly High-Volume Stock Losers (42)

• MS, EWBC, WDR, NTK, MCK, PCL, PX, ADSK, AZZ, SYF, ARG, ABT, PLUS, EXC, HEI, TIF, ULTA, NTRS, VAL, BLOX, NDSN, GSBD, TYPE, SLB, SSS, COG, DG, FMC, PDCO, LEG, DE, JLL, TOL, ROST, CBG, OPK, DSW, WSM, CRMT, POM, INTU and TFM

Weekly Charts

ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change

Stocks Modestly Lower into Afternoon on China Bubble-Bursting Fears, Fed Uncertainty, Earnings Worries, Utility/Pharma Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 27.21 +4.25%

• Euro/Yen Carry Return Index 141.90 -.15%

• Emerging Markets Currency Volatility(VXY) 11.56 -.94%

• S&P 500 Implied Correlation 62.06 +9.41%

• ISE Sentiment Index 86.0 unch.

• Total Put/Call 1.23 +3.36%

• NYSE Arms .92 +165.13% 

Credit Investor Angst:

• North American Investment Grade CDS Index 79.71 +.97%

• America Energy Sector High-Yield CDS Index 1,872.0 -2.51%

• European Financial Sector CDS Index 81.26 +2.38%

• Western Europe Sovereign Debt CDS Index 22.34 -2.66%

• Asia Pacific Sovereign Debt CDS Index 79.70 +1.55%

• Emerging Market CDS Index 344.58 +.55%
  

• iBoxx Offshore RMB China Corporates High Yield Index 116.79 -.36%

• 2-Year Swap Spread 15.25 +.75 basis point

• TED Spread 27.25 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -21.25 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .06% +1.0 basis point

• Yield Curve 146.0 -3.0 basis points

• China Import Iron Ore Spot $56.04/Metric Tonne +3.91%

• Citi US Economic Surprise Index -7.5 -4.8 points

• Citi Eurozone Economic Surprise Index 14.6 -3.5 points

• Citi Emerging Markets Economic Surprise Index -9.6 -1.7 points

• 10-Year TIPS Spread 1.61 +2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.61 -.31

Overseas Futures:

• Nikkei 225 Futures: Indicating -1 open in Japan 
• China A50 Futures: Indicating -302 open in China

• DAX Futures: Indicating -8 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long