“Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes.” — George Soros

1. J.P. Morgan Faces New Probe on Energy Trades — the Department of Justice is reportedly investigating JPMorgan (JPM) over whether it manipulated U.S. energy markets. The speculation comes less than a month after the bank agreed to pay $410M to the Federal Energy Regulatory Commission to settle charges related to such manipulation. The latest probe adds to inquiries over the London Whale, metal warehouses and mortgage bonds problems.
2. Moody’s lifts outlook on U.S. states — WSJ, the ratings agency changed its collective outlook on U.S. states to stable from negative, where it has been for the past five years. Credit quality among the 50 states is generally high, Moody’s said, with 30 states rated at triple-A or Aa1, the two highest ratings. Moody stated the slowly recovering economy has helped states’ revenue and reserves.
3. China manufacturing sees surprise rebound — MarketWatch, the “flash” reading of the China manufacturing PMI, compiled by HSBC and Markit, rebounded to a four-month high of 50.1 from a final reading of 47.7 in July, an 11-month low.
A reading below 50 indicates contraction in sector activity, while one above 50 shows growth.
4. Eurozone business growth hits two-year highs — Eurozone flash manufacturing PMI has increased to a 26-month high of 51.3 in August from 50.3 in July and exceeded consensus of 50.8. Services also showed expansion, as did the composite figure.
5. Emerging markets selloff intensifies after Fed — Reuters, after the FOMC minutes released late last week, which caused the recent spike in U.S. debt yields has caused borrowing costs to increase globally, which, along with the rising dollar, has not been healthy for emerging markets with large current account deficits, such as India. The country’s rupee, along with Turkey’s lira, hit new record lows, while the currencies of Indonesia, Malaysia and Thailand dropped to multi-year troughs.
6. Deficit Budget Deal Talk Break-Down — NYTimes, budget talks between the White House and Senate Republicans have gone nowhere since Congress began its summer recess, increasing chances of a fiscal stalemate that could lead to a government shutdown in October or the threat of a government default later in the fall.
7. AAII Bullish Sentiment — from BIG, according to the weekly survey from American Association of Individual Investors (AAII), bullish sentiment dropping to its lowest levels since early 2012.

The week ahead — Economic data from Econoday.com:

“Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.” — Soros

1. Japan’s Q2 GDP growth slows and misses estimates — Japan’s economic expansion decelerated in Q2 to an annualized 2.6% from 3.8% in Q1 and missed consensus of 3.6%. Growth was dragged down by an unexpected drop in capex, although private consumption topped forecasts.
2. U.S. Regulator & CFTC Subpoenas Banks Over Long Warehouse Queues— Reuters, U.S. derivatives regulator subpoenaed Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) for documents relating to their warehouses for aluminum and other metals. The speculation comes amid allegations that warehouse companies artificially boosted the price of metals, particularly aluminum. Other companies that are being probed include Glencore (GLNCY.PK) and Noble Group (NOBGF.PK).
3. Eurozone exits recession as Germany, France, Portugal grow — Eurozone GDP expanded 0.3% on quarter in Q2, signaling an end to the region’s recession. The growth represented a recovery from contraction of 0.3% in Q1 and topped consensus of +0.2%. Germany expanded again in Q2 after GDP was flat in Q1, boosted by domestic demand, fixed capital formation and a trade surplus. France exited recession, as did – most surprisingly – Portugal, whose economy grew 1.1%.
4. Asset Class Performance YTD — from BIG, below is an updated look at the performance of various asset classes (ETFs) during the month of August.

ETFs Aug 14 2013

The week ahead — Economic data from Econoday.com:

1. China seeks recall of two Abbott infant formula products — MarketWatch, China has asked Abbott Laboratories (ABT) to recall some infant formula products after the New Zealand embassy said that two batches produced by the company could have been tainted by bacteria that can cause botulism.
2. Chinese trade data beats estimates — China’s trade data for July topped expectations and provided evidence that the economy might be stabilizing after over two years of slowing growth. Imports surged 10.9% on year vs expectations of +2.1%, while exports rose 5.1% vs +3%.
3. BOJ leaves monetary policy unchanged — the Bank of Japan (BOJ) has maintained its pledge to expand the monetary base by ¥60T to ¥70T a year. The BOJ also kept its assessment of the economy unchanged, saying that it’s “starting to recover moderately,” and the bank noted that “inflation expectations appear to be rising.”
4. Japan’s Debt Exceeds 1 Quadrillion Yen — Bloomberg, the country’s outstanding public debt including borrowings reached a record 1,008.6 trillion yen ($10.46 trillion) as of June 30, up 1.7 percent from three months earlier, the finance ministry said in Tokyo. Larger than the economies of Germany, France and the U.K. combined, the amount includes 830.5 trillion yen in government bonds. The world’s heaviest debt burden will weigh on Abe when he decides next month whether to implement a two-step plan to double the tax on consumers in a nation with ballooning welfare costs.
5. AAII Bullish Sentiment — from BIG, according to the weekly survey from American Association of Individual Investors (AAII), bullish sentiment increased from 35.6% up to 39.5%. At this level, even though the S&P 500 is within 1% of an all-time high, bullish sentiment is only one percentage point above its historical average for the current bull market (38.3%).

The week ahead — Economic data from Econoday.com:

“After all these years, I know one thing for certain: the PERFECT trading system does not exist and never will” — Jake Berstein

1. Treasury Secretary to avoid Detroit bailout — ABCNews, Treasury Secretary Jacob Lew appears to have dismissed union calls to provide bankrupt Detroit with financial assistance. “Detroit’s economic problems have been a long time in developing,” he said. “I think Detroit’s going to have to work with its creditors on this.” In the Senate, Texas’ John Cornyn has filed an amendment that would ban the federal government from bailing out financially troubled cities, while Lindsey Graham is also opposed to such rescues.
2. Japanese industrial output drops in June — Japanese industrial production unexpectedly dipped in June by 3.3% on month, trailing expectations for a 1.7% drop. A decline in the production of transport equipment, including autos, led the fall, followed by electronics and machinery.
3. China’s official Purchasing Managers’ Index (PMI) for July 2013 shows gain — MarketWatch, China’s official(PMI), registered a surprise gain for July, rising to 50.3 from 50.1 the previous month. However, a separate PMI published by HSBC and Markit said activity was contracting, with the index sinking to an 11-month low of 47.7, down from June’s final reading of 48.2. Any reading above 50 indicates activity is expanding, and the result beat expectations for a drop to 49.8, according to estimates reported by Dow Jones Newswires.
4. Fed downgrades economic view — FederalReserve, The FOMC slightly downgraded its view of the U.S. economy. The Fed stated the US economy expanding at a “modest” pace vs. “moderate” at the last meeting. However, the Fed didn’t provide any hint about any alteration to the future course of QE.
5. Eurozone economy stabilizes as German recovery accelerates and downturns ease in France, Italy and Spain — Markiteconomics, Eurozone business activity expanded for the first time in 18 months in July as composite PMI increased to 50.5 from 48.7 in June, while services PMI rose to 49.8 from 48.3. Germany’s recovery gained momentum and the downturns in major economies such as France, Italy and Spain eased further.
6. Bullish Sentiment Drops For 3rd Straight Week — courtesy of BIG, as market makes new highs, individual investors actually turned moderately more cautious in the latest week According to the weekly survey from the American Association of Individual Investors (AAII).

The week ahead — Economic data from Econoday.com: