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 Good morning! Here's what you need to know. 1. Banco Espirito Santo Quarantined. Portugal will spend 4.9 billion euros, or $6.6 billion, to break up troubled Banco Espirito Santo into a "good" bank and a "bad" bank, the latter entity holding the firm's non-performing loans. The deal, which deploys leftover funds from Portugal's IMF bailout, protects taxpayers and senior creditors while leaving shareholders and junior bondholders to shoulder most of the damage. Junior debt BES debt is now trading at 20 cents on the dollar. "The rescue, which will destroy much of the value of investments made by equity and subordinated debt holders, is seen as a test case for a tougher stance by EU regulators, who have promised to protect taxpayers from the cost of bailing out mismanaged banks," the FT said. 2. Junk Bond Markets Drying Up. The Wall Street Journal's Katy Burne reports that investors have begun exiting junk bond markets on fears of a Fed rate hike, noting that junk bonds lost an average of 1.33% last month, their second-worst monthly performance since November 2011. "The downdraft in junk debt highlights concerns that purchasers in the $1.6 trillion U.S. market, lured by higher income than on government and highly rated corporate bonds, have paid too much for the securities," Burne writes. "Prices have rallied, sending yields to levels too low to compensate buyers for the risk of the investments, many investors say. The tremors are being closely scrutinized across Wall Street. Many investors this year have expressed concerns that a pullback in junk-bond prices could signal that market participants are rethinking their willingness to take risk, foreshadowing further declines in stocks and other risky assets." 3. Now Armenia and Azerbaijan Are Fighting. As if things couldn't get worse in the region, leaders from the two eastern European nations will meet this week to stave off war after 18 soldiers were killed in border clashes last week. The two countries signed a cease-fire in 1984. 4. ISIS Closes In On Iraq's Largest Dam. Extremist forces were able to rout Kurdish pesh merga fighters to make unexpected gains in the country's north, the New York Times reports. "The seizing of the three towns in a triangle that stretches north and west from Mosul to the borders of Syria and Turkey allowed the extremists to expand their territory, but the capture of the Mosul Dam would be a bigger prize, and could give the militants the ability to unleash a deadly flood on large populations," the Times says. 5. Europe Investor Sentiment Hurt By Sanctions. The latest Sentix survey shows morale among investors in the euro zone slumped to 2.7 in August, the lowest level in a year, and down from 10.1 in July, Reuters says."After last month's recovery the euro zone Sentix index has suffered a painful set-back," Sentix said in a statement, attributing it to sharply reduced growth expectations due to the sanctions. "As this slump derives from an event which is subject to politics and power play, the central banks, particularly the European Central Bank, will have difficulty in trying to counter this," Sentix added. 6. Rousseff's Pain Is Gain For Real. Nomura now assigns a 70% chance that Brazil President Dilma Rousseff's party will lose in October elections, up from 60% in June. That decline has coincided with a $0.05 gain in forecasts for Brazil's currency, the real, Bloomberg reports. Brazil has seen the lowest rate of growth since 1992.If the market assigns a higher likelihood of Dilma losing, that’s good for the real,” Ezequiel Aguirre, a strategist at Bank of America in New York, told Bloomberg. 7. HSBC Reports First 6-Month Profit Decline Since 2009. Europe's largest bank reported Monday that pretax earnings had declined 12% to $12.3 billion from $14.1 billion a year earlier. That was short of forecasts. Investment banking profits also fell 12%. "Chief Executive Officer Stuart Gulliver has exited at least 68 businesses since taking over in 2011, eroding revenue, as the bank invests in its most profitable markets amid increased regulation and compliance costs," Bloomberg said. "HSBC, which gets the bulk of its profit from Asia, is striving to keep bad loans under control and cut as much as $3 billion of expenses as earnings from investment banking falls." 8. Earnings. This morning we get Michael Kors and Loews. After the bell we get AIG and Marathon Oil. 9. Markets. U.S. futures were up 0.3%. Japan's Nikkei fell 0.3%. Hong Kong's Hang Seng climbed 0.2%. London's FTSE was up 0.5%. Germany's DAX was up 0.1%. 10. No Major Econ Data Today. The Giants rallied late to beat the Bills 17-13 in the Hall of Fame game in Canton kicking off the NFL season. | 
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