Friday Watch

Evening Headlines
Bloomberg:

• Oil Set for Longest Rally Since April as Dollar Declines on Fed Stimulus. Oil rose for a fifth day in New York, headed for the longest rally since April, as the dollar declined on the Federal Reserve’s decision to purchase more debt to bolster the U.S. economy. Crude advanced to a seven-month high, approaching $87 a barrel after the Fed said Nov. 3 it will buy about $75 billion of Treasuries a month through June. The greenback dropped to a nine-month low against the euro, boosting the appeal of commodities as an alternative investment. U.S. crude supplies are 14 percent above the five-year average, Energy Department figures show. “The markets have taken off like bottle rockets,” said Richard Soultanian, co-president of NUS Consulting Group, a Park Ridge, New Jersey-based energy procurement adviser. “The Fed action is going to create commodity inflation. A weak dollar is providing impetus to all the commodity trades.”
  
• China Says U.S. Fed Must Explain Bond-Buying or Endanger Global Confidence. China said the U.S. Federal Reserve needs to explain this week’s decision to purchase bonds to pump money into the world’s biggest economy or risk undermining the global recovery. “Many countries are worried about the impact of the policy on their economies,” Vice Foreign Minister Cui Tiankai said at a press briefing in Beijing today. “It would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt.” Cui’s remarks echo concerns raised across Asia as countries brace themselves for stronger currencies and possible asset- price inflation. German Finance Minister Wolfgang Schaeuble yesterday said the U.S. was creating problems for the world and the subject would be raised during next week’s Group of 20 leaders’ summit in Seoul.
• Portuguese Budget Pact Fails to Cap National Borrowing Costs: Euro Credit. Portugal is suffering higher borrowing costs after agreeing to an austerity package that may do as much to choke an economic recovery as tame its deficit. The extra yield investors demand to hold Portuguese debt rather than German bunds widened for a seventh day yesterday to the highest level in five weeks. The premium rose even after the minority government on Nov. 3 passed a budget plan that features wage and spending reductions to trim the euro region’s fourth- largest deficit from 9.3 percent of 2009 gross domestic product. “There is a bit of a crisis of confidence,” said Filipe Silva, who manages 60 million euros ($85 million), including Portuguese bonds, at Banco Carregosa SA in Oporto, Portugal. “Even with the budget approved, political parties aren’t able to speak with one voice to the external audience. We are seeing volatility that isn’t supposed to exist in the sovereign debt market.”
• Chinese Banks Give First Yuan Credit-Default Swap Price Guidance. China Everbright Bank Co. and China Development Bank are the first banks in China offering indicative prices for yuan-denominated credit-default swap contracts, according to data compiled by Bloomberg. China Everbright is indicating it will sell contracts protecting AAA-rated bonds and loans from default for five years for 86 basis points, while China Development Bank Corp. may offer similar contracts for 90 basis points, according to Bloomberg data.
• Gasoline Exports to U.S. Decline on 20-Month Low Margins: Energy Markets. The profit from shipping gasoline to the U.S. from Europe slumped to a 20-month low in October as strikes in France caused domestic shortages, cutting exports. U.S. gasoline cost 8.05 cents less than Europe’s on Oct. 19, the lowest level since February 2009, and is still down 9.5 percent from its average of 8.41 cents more than Europe’s in the past year. As the premium disappeared, the number of tankers chartered to ship the motor fuel to the U.S. Atlantic Coast from Europe dropped to 10 last month, from 28 in September, according to data compiled by Bloomberg and Clarkson Research Services Ltd., a unit of the world’s biggest shipbroker.
• Fannie Mae, Freddie Mac Fix May Cost U.S. Taxpayers $685 Billion, S&P Says. Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the U.S. covers losses and overhauls the housing-finance system, Standard & Poor’s said. Costs for resolving the two government-sponsored entities could reach $280 billion, including $148 billion already delivered under a U.S. Treasury Department promise of unlimited support, New York-based S&P said today in a research report. The government may spend another $405 billion to capitalize a replacement for the two companies, which own or insure more than half the U.S. mortgage market. “It appears unlikely in our view that housing and mortgage markets will be able to operate normally without continuing and substantial government involvement,” S&P said, citing the GSEs’ growing portfolio of unsold homes, a sluggish economy, high unemployment, the prospect of rising foreclosures and billions in legacy losses.
• U.S. Bank Shares Rise on Report Fed May Allow Dividend Boosts. U.S. bank stocks rose the most in two months after the Wall Street Journal said the Federal Reserve is expected to allow lenders with satisfactory capital levels to increase dividend payments. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, led the KBW Bank Index to a 3.6 percent gain at 4:01 p.m. in New York. The increase was the largest since Sept. 1. Eighty of the 81 companies in the Standard & Poor’s 500 Financial Index also advanced. Regulators are expected to soon provide banks with requirements they must meet to raise the dividends, the Wall Street Journal reported, citing people familiar with the matter.
• Comedy Central's Stewart Overtakes Letterman, Leno. Comedy Central’s Jon Stewart has overtaken David Letterman and Jay Leno as the king of late-night U.S. television, at least for a month, the cable network said. “The Daily Show With Jon Stewart” in October averaged 1.3 million viewers ages 18 to 49, a group advertisers target, topping NBC’s “The Tonight Show With Jay Leno” and CBS’s “Late Show With David Letterman,” the Viacom Inc.-owned cable channel said today in an e-mailed statement.
• Dubai Needs 20 Months to Eliminate Oversupply, Emaar Chief Alabbar Says. Dubai real-estate prices will continue to drop as the United Arab Emirates’ second-biggest sheikhdom absorbs an oversupply of homes and offices, said Mohamed Alabbar, chairman of Emaar Properties PJSC. “We need 20 months or so to go over the excess supply,” he said during a panel discussion at the Bloomberg Link Real Estate Briefing today in New York. “Rates in Dubai about a year and half ago were a little higher than New York, which is abnormal.” Property prices have dropped by more than half in Dubai and by 30 percent in neighboring Abu Dhabi as banks tightened mortgage lending and speculators fled the market.
• BHP(BHP) May Fail to Save Potash(POT) Bid in 'Politicized' Canada Rebuff. BHP Billiton Ltd. may find Canada’s political climate too hostile to overturn the rejection of its $40 billion bid for Potash Corp. of Saskatchewan Inc. should it choose to appeal the decision.
• Pelosi May Lack Support as Leader, Two Democrats Say. Two House Democrats called on Speaker Nancy Pelosi to prepare to leave the leadership team after their party suffered the biggest loss of seats in more than 70 years and Republicans won control of the chamber. “We need to shake things up,” Democratic Representative Jim Matheson, co-chairman of the fiscally conservative House Blue Dog Coalition, said in an interview today. Matheson of Utah and Democratic Representative Heath Shuler of North Carolina said the party’s loss of at least 60 House seats is too steep to keep Pelosi, of California, at the helm as minority leader when a new session of Congress starts in January. “I’m convinced she realizes this” and will leave, said Shuler. He said House Majority Leader Steny Hoyer of Maryland has the inside track to replace her as top leader should she decide to step aside.
• Republican-Led House May Act Next Year on Highway Bill, Panel's Mica Says. The U.S. House may vote early next year on a six-year plan for funding highways, and “raising taxes is off the table,” said Representative John Mica, senior Republican on the Transportation committee. The plan will use public-private partnerships, unspent federal dollars and accelerated release of aid to states to generate cash for projects, said Mica of Florida, in line to lead the House Transportation and Infrastructure Committee as a result of Republicans gaining control in the Nov. 2 election. “We don’t have to spend a huge amount of more money, but we can leverage the money that we have, or better move the funds that we have, and get things done,” Mica said today in an interview.

Wall Street Journal:

• Central Bank Treads Into Once-Taboo Realm. The Federal Reserve will print money to buy nearly as much U.S. Treasury debt in the next eight months as the U.S. government will issue. The Fed's decision this week to buy $600 billion more of U.S. Treasury debt is setting off a debate about the risks of a central bank entwining its policies so tightly with the government's fiscal fortunes. The Fed is essentially lending enough money to the government to fund its operations for several months, something called "monetizing the debt." In normal times, this is one of the great taboos of central banking because it is seen as a step toward spiraling inflation and because it risks encouraging reckless government spending.
• New Governors to Target Health Law. Newly elected Republican governors are planning to blunt key parts of the federal health overhaul and join lawsuits against it, suggesting states could trump Congress as the hottest front in the fight over the law.
• Chicago Delays Bond Sale Amid News of Fiscal Woes. The city of Chicago is delaying a roughly $800 million general obligation bond sale originally scheduled for next week, amid hefty municipal bond supply and a flurry of negative fiscal headlines about the Windy City.
• Google(GOOG) Vies for Shoppers. Google Inc. is upgrading its shopping site as it steps up efforts to compete in Web comparison shopping, a move to become a key player in a market dominated by sites like Amazon.com Inc. and eBay Inc.
• Pakistan al Qaeda Aids Yemen Plots. Osama bin Laden and other al Qaeda leaders are believed to be providing strategic and philosophical guidance from Pakistan to Yemen-based al Qaeda in the Arabian Peninsula, or AQAP, the group Washington believes was behind last week's attempt to ship bombs in packages to the U.S.
• What the Next Speaker Must Do by John Boehner. Secrecy, arrogance, and the abuse of power have shattered the bonds of trust between the people and their elected leaders. Repairing that trust requires sweeping change, beginning with an end to earmarks.

CNBC:

• Ron Paul is About to Totally Revolutionize the House Monetary Policy Panel. Ron Paul, the Republican Congressman from Texas, is the ranking member of the monetary policy subcommittee, and when the next Congress takes over he’ll likely be the chairman of the subcommittee. And Congressman Paul has some big plans. “I will approach that committee like no one has ever approached it because we’re living in times like no one has ever seen,” Paul said in an interview with NetNet Thursday. Paul said his first priority will be to open up the books of the Federal Reserve to the American people. “We need to create transparency there. To see what it is they are buying and lending, and who it is they are dealing with,” Paul said.
• Tax-Cut Talks Would Include Dividends and Capital Gains.
• Tensions Threaten Asia as China Rises. The Asia-Pacific region faces a period of strategic tensions that could damage economic ties as key national players adapt to an increasingly assertive China growing impatient with U.S. efforts to shore up its influence.

Marketwatch.com:

• Bank of Japan Details Asset-Buying Plans. The Bank of Japan decided Friday to hold interest rates steady, as widely expected, and released details of funds to be purchased through its latest liquidity-boosting scheme. The policy board decided by unanimous vote at its two-day meeting to keep the overnight call rate in a range of zero to 0.1%. The board also said it would buy exchange-traded funds linked to the Topix index and the Nikkei Stock Average, as well as Japanese real-estate investment trusts rated AA or higher, as part of its new 5 trillion yen ($62 billion) asset-buying scheme. The BOJ said it would begin buying Japanese government bonds under the new plan at the beginning of next week.

Business Insider:

• The Fed Has Now Given The Big Banks Two Big Gifts In As Many Days.

IBD:

• Pharma Ramps Up Research On Vaccines To Treat Cancer. On Wednesday, pioneer prostate-cancer vaccine company Dendreon (DNDN) reported sales about 20% below consensus for its 2010 third quarter. Instead of the anticipated $24 million in third-quarter revenue from Provenge, a vaccine to fight prostate cancer, the number was just over $20 million.

Forbes:

• Wise Men or Blind Men at the Fed? The Fed's preoccupation with deflation is surreal as we witness price spikes in metals and agricultural commodities.

Reuters:

• Iran Says Its Aid to Afghanistan Totals $500 Million. Iran, which the United States and its NATO allies accuse of destabilizing Afghanistan, has provided some $500 million in aid for its conflict-torn neighbor, a senior Iranian official said on Thursday.
• Starbucks(SBUX) Raises Targets as Traffic, Prices Rise. Starbucks Corp raised its full-year profit forecast, boosting confidence it has entered a new phase of growth and sending its shares up 2 percent.

Financial Times:

• US Shoppers Regain Taste for 'Luxury Light'.
  

Telegraph:

• Doubts Grow Over Wisdom of Ben Bernanke 'Super-Put'. The early verdict is in on the US Federal Reserve's $600bn of fresh money through quantitative easing. Yields on 30-year Treasury bonds jumped 20 basis points to 4.07pc. It is the clearest warning shot to date that global investors will not tolerate Ben Bernanke's openly-declared policy of generating inflation for much longer. Soaring bourses may have stolen the headlines, but equities are rising for an unhealthy reason: because they are a safer asset class than bonds at the start of an inflationary credit cycle. Meanwhile, the price of US crude oil jumped $2.5 a barrel to $87. It is up 20pc since markets first concluded in early September that 'QE2' was a done deal. This amounts to a tax on US consumers, transferring US income to Mid-East petro-powers.

China Daily:

• More than 75% of groundwater in the North China Plain is not safe to drink because of heavy metal, chemical fertilizer and surface water pollution, citing a study by the China Geological Survey. The poor quality of the water is affecting people's health and causing conflicts over supply, the report cited Zhang Zhaoji, an expert at the Chinese Academy of Geological Sciences, as saying at a conference.
  

China Securities Journal:

• China needs "internal tightening" to avoid the formation of an asset bubble after the Federal Reserve's decision to introduce a new round of quantitative easing, the China Securities Journal said in an anonymous editorial today.

Evening Recommendations
Citigroup:

• Reiterated Buy on (CELL), target $10.
• Reiterated Buy on (RIG), target $80.

Night Trading

• Asian equity indices are unch. to +1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 93.0 -8.0 basis points.
  
• Asia Pacific Sovereign CDS Index 93.75 -2.25 basis points.
  
• S&P 500 futures -.15%
  
• NASDAQ 100 futures -.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BZH)/-.44
• (SUP)/.37
• (FCN)/.61
• (CVH)/.67
• (AMT)/.20
• (MIR)/.66
• (DISH)/.44

Economic Releases
8:30 am EST

• The Change in Non-farm Payrolls for October is estimated at +60K versus -95K in September.
• The Change in Private Payrolls for October is estimated at +80K versus +64K in September.
• The Unemployment Rate for October is estimated at 9.6% versus 9.6% in September.
• Average Hourly Earnings for October are estimated to rise +.2% versus unch. in September.

10:00 am EST

• Pending Home Sales for September are estimated to rise +3.0% versus a +4.3% gain in August.

3:00 pm EST

• Consumer Credit for September is estimated at -$3.0B versus -$3.3B in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Atlanta Fed Conference, Fed's Plosser speaking, Fed's Hoenig speaking, Fed's Fisher speaking, Fed's Bullard speaking, Fed's Lacker speaking could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by automaker and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.