>>> US Close Dow -0.29% S&P -0.24% Nasdaq -0.19% Russell-0.50%

Closing Market Summary: Averages End Lower as Oil Weighs

The stock market ended the midweek affair on a modestly lower note as investors favored a cautious approach ahead of Friday's employment report. Other focal points impacting today's trade included a downturn in crude oil futures and relative weakness from the heavily-weighted industrial (-0.5%) sector. The S&P 500 (-0.2%) erased a modest month-to-date gain, surrendering 0.1% in August.

The major averages slipped at the beginning of the session as investors responded to weakness from the oil patch and a mixed performance from global bourses. Crude oil futures were under pressure overnight after the American Petroleum Institute reported a larger-than-expected build in crude oil stockpiles. The energy component extended its loss after the Department of Energy confirmed the disappointing reading with its more influential stockpile data.

The EIA reported that crude oil stockpiles rose by 2.27 million barrels (consensus: +0.92 million) while gasoline inventories declined by 0.69 million barrels (consensus: -1.15 million). As a result, WTI crude slipped from the $46.00/bbl price level, remaining pressured throughout the session. Crude oil ended lower by 3.5% ($44.71/bbl; -$1.63), narrowing its August gain to 7.6%.

Sellers pressed the broader market near midday, corresponding with remarks from Leon Cooperman of Omega Advisors. The investment fund chairman stoked selling interest when he stated that his fund recently trimmed its equity exposure. Mr. Cooperman expressed concerns regarding finding undervalued assets in the "fairly but fully" valued state of the broader market.

The benchmark index pared losses in the second half of trade, reclaiming technical support near the 2170 price level. Seven sectors ended in the red with commodity-sensitive materials (-0.9%) and energy (-1.4%) acting as notable laggards. Conversely, financials (+0.1%), consumer staples (+0.1%), and utilities (+0.3%) ended with the only gains.

The Dow Jones Transportation Average (-0.4%) ended behind the broader market as airlines underperformed. The U.S. Global Jets ETF (JETS 22.54, -0.16) settled lower by 0.7%, pulling back from yesterday's 2.1% gain. In the broader industrial sector (-0.5%), Dow component Boeing (BA 129.49, -1.32) ended behind the price-weighted index while Lockheed Martin (LMT 243.01, +3.56) rebounded 1.5%. 

Retail names underperformed in the consumer discretionary sector (-0.3%) as investors looked ahead to the release of same-store sales data later in the week. Nordstrom (JWN 50.45, -1.00) and Gap (GPS 24.87, - 0.47) ended lower by 1.9% apiece. The broader discretionary sector declined 1.4% this month, trailing the remaining cyclical sectors.

In the financial sector (+0.1%), rate-sensitive real estate investment trusts outperformed, evidenced by the 0.2% gain in the iShares Dow Jones Real Estate ETF (IYR 82.54, +0.16). On a related note, the real estate sub-group will be removed from the broader financial sector tomorrow and a REIT sector will be formed. This will be the first change to the ten economic sectors since 1999. The financial space gained 3.6% in August, leading the remaining sectors.

Treasuries ended on a mixed note with the short end of the curve demonstrating relative strength. The yield on the 10-yr note ended higher by one basis point (1.58%) while the yield on the 2-yr note settled flat at 0.81%.

Today's participation was above the recent average as more than 1.08 billion shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, the ADP Employment Change Report for August, Chicago PMI for August, and Pending Home Sales for July: 

  • The MBA Mortgage Index showed that mortgage applications increased 2.8% in the week ending August 27. This followed a 2.1% decline in the prior week. 
  • The ADP Employment Change report for August estimated that 177,000 positions were added to private sector payrolls versus the consensus estimate of 170,000. July was revised up to 194,000 from 179,000.
    • The report doesn't alter expectations for Friday's Employment Situation report nor does it weaken any inclination the Fed might have to raise rates at its September meeting.
  • The Chicago Purchasing Managers Index (PMI) dropped to 51.5 in August (consensus 54.5) from 55.8 in July. The demarcation point between expansion and contraction for this report is 50.0.
    • The report suggests that the pickup in manufacturing activity in the Chicago Fed region in June and July may have only been a temporary condition, bolstered simply by the need to increase inventory levels.
  • Pending Home Sales for July rose by 1.3% while the consensus expected an increase of 0.7%. Separately, the June reading was revised to -0.8% from 0.2%.

For more on these economic releases, be sure to visit Economic Calendar page.

Tomorrow's economic data will include the 7:30 ET release of the Challenger Job Cuts Report for August. Weekly initial claims (consensus 265k) and the revised estimate for second quarter Productivity (consensus -0.6%) and Unit Labor Costs (consensus 2.1%) will each cross the wires at 8:30 ET. Construction Spending for July (consensus +0.6%) and the ISM Index for August (consensus 52.2) will each be released at 10:00 ET. Separately, August Auto and Truck Sales data will be made available throughout tomorrow's session. 

WSJ : French Carrier Pursues Stake in Iranian Wireless Firm

French Carrier Pursues Stake in Iranian Wireless Firm

Orange in talks with MCI over investment and commercial deals

France’s Orange SA has entered preliminary talks to buy a stake in Iran’s largest cellular operator, Mobile Telecommunication Co. of Iran, according to people familiar with the matter, a potentially groundbreaking deal that illustrates the promise and peril of international investment in the Islamic Republic.

Orange, France’s largest telecom company, is one of several European companies that have held discussions about buying a stake in MCI, the people said. The identities of the others couldn’t be immediately learned.

Sealing a deal would mark the first time a Western firm has acquired a significant holding in a major Iranian company since Tehran agreed to curb its nuclear program last year in exchange for the lifting of international sanctions.

The Paris-based company is discussing a commercial and technical agreement as well as a share purchase. Orange, which is 23%-owned by the French state, is navigating difficult straits as Iran strains to open its markets up to the West. It needs to squeeze financing for a potential deal out of Western banks that are fearful of being hit by remaining U.S. sanctions.

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In addition, MCI’s parent company, Telecommunication Co. of Iran, or TCI, is owned by a group of companies that in some cases lead back to Iran’s Revolutionary Guards Corps, a paramilitary force that runs large swaths of the Iranian economy and remains under U.S. sanctions for its alleged involvement in terrorism, an accusation it denies.


“We are conducting feasibility studies to understand and assess what’s possible in this complex environment, particularly with regards to certain economic sanctions that apply to Iran,” a spokesman for Orange said.

France, which took a tough stance against Iran’s nuclear program, has moved to position French companies to take advantage of January’s lifting of Western sanctions. Officials in the finance and economy ministries weren’t immediately available to comment on the talks between Orange and MCI.

Orange executives have discussed a possible transaction with MCI Chief Executive Vahid Sadoughi during trips to Tehran, people familiar with the matter said. It also has conducted due diligence on the Iranian company’s accounts, including TCI’s debt of more than $1 billion, according to one of the people.

“Our negotiations haven’t been completed yet,” said Mr. Sadoughi, confirming the discussions. “I think the talks will be finalized within the next three, four months.”

Spokespeople for TCI and the Revolutionary Guards didn’t respond to requests for comment.

Iran’s return to the international fold has stirred interest from Western companies, many of whom have suffered from low growth in mature European economies. Orange executives say they are focusing on growth in the Middle East and Africa, where they see demand for better cellular services being stoked by a growing middle class and rising populations.

Iran has mobile penetration of 130%, meaning some people have more than one phone or SIM card, while two-thirds of homes have broadband access. MCI is the leader in that market with a 60% share, or 77.9 million SIM cards, according to the company. It has a market value of more than $4 billion on the Tehran stock exchange.

“All operators around the world are looking for a form of cooperation with Iran,” said Bruno Mettling, Orange’s deputy chief executive for the Middle East and Africa. He made the comments in an interview in London last month.

Many Western firms, however, are worried the nuclear accord might get rolled back after they set up shop. Others are troubled by sanctions not affected by the nuclear accord that continue to saddle Iran’s economy.

American law still prohibits U.S. and foreign banks from dealing in dollars with Iran, despite the nuclear agreement. The Treasury Department designates Iran’s entire financial system as a “primary money laundering concern” due to Tehran’s nuclear and missile programs and support for groups on its terrorism blacklist, such as Hezbollah in Lebanon and Hamas in the Palestinian territories.

Revolutionary Guards companies own at least 39% of Etemad-e-Mobin, which in turn controls TCI through a stake of 50% plus one share. Orange or any other international investor who sits down with TCI must be careful not to end up in negotiations with the Revolutionary Guards, contact that would violate U.S. sanctions, according to Peter Harrell, a former deputy assistant secretary who oversaw sanctions at the U.S. State Department.

Even if no laws are broken, businesses with links to the Revolutionary Guards are “likely to be fairly politically toxic in the United States” and would be subjected to heightened scrutiny by both the U.S. Congress and American banks, Mr. Harrell said.

Orange is listed on the New York Stock Exchange and some of its U.S. dollar-denominated transactions are cleared in New York, people familiar with the matter said.

For now, Orange has yet to make a formal offer for a stake of any size, people familiar with the matter said. MCI and Orange are first expected to complete a commercial agreement in the coming months, helping to build trust between the two sides.

“Both sides are discussing their points and terms. It is not only about the shares, but also cooperation with Orange,” said Mr. Sadoughi.

Orange has been planning its move into Iran for years. Its consultancy unit, Sofrecom SA, has provided technical assistance to TCI and advised its management since at least 2014, according to invoices reviewed by The Wall Street Journal.

(ZH) Rand Tumbles As South Africa's Largest Debt Manager Halts Loans To State Fi


In a shocking move, South Africa's largest fixed income manager hashalted all lending to state-owened entities on governance concerns.
As Bloomberg details,


Africa’s biggest private fixed-income money manager will stop lending money to six of South Africa’s largest state companies because it’s concerned about how they are being run, government infighting and threats to the independence of the finance ministry.

Futuregrowth Asset Management, which has about 170 billion rand ($11.7 billion) in assets, shelved plans to lend more than 1.8 billion rand to three state companies on Tuesday, Chief Investment Officer Andrew Canter said by phone from Cape Town on Wednesday, without giving more detail. The fund manager will only resume offering loans and rolling over existing debt once it has determined that what it sees as proper oversight and governance at the companies have been restored.

The companies are power utility Eskom Holdings SOC Ltd., rail and ports operator Transnet SOC Ltd., South African National Roads Agency SOC Ltd., the Land Bank of South Africa, the Industrial Development Corp. of South Africa and the Development Bank of Southern Africa. The decision won’t immediately affect lending to the government and other state bodies such as water boards and municipalities.

“We’ve observed recent reports that strongly hint of conflict between branches of South Africa’s government, the possible machinations of patronage networks and a seeming challenge to the National Treasury’s independence,” Canter said.

“Any material risk to the state-owned entities’ governance, budgeting and approval processes for spending or lending must impact on our forward-looking credit assessments. It is difficult to make reasoned and defensible decisions to continue providing state-owned companies with additional funding using clients’ money.”
Bonds of the major SOEs are tumbling as is the Rand...