Wednesday Watch

Evening Headlines
Bloomberg:

• Efforts to Extend Bush-Era Tax Cuts Falter as White House Meeting Delayed. A deal to extend soon-to-expire Bush-era tax cuts won’t be completed until December, and some Democrats in Congress said an accord may not be reached this year. President Barack Obama and congressional leaders postponed until Nov. 30 a White House meeting, previously scheduled for tomorrow, to negotiate whether to extend lower tax rates for all taxpayers or just those with incomes of $250,000 or less. Separately, Democrats, who control the Senate, said they haven’t agreed on a plan. “I don’t even know what the options are at this moment,” Senator Maria Cantwell, a Democrat from Washington state who serves on the tax-writing Finance Committee, said yesterday. The delay sets the stage for year-end brinksmanship that would result in higher taxes for all Americans next year if Congress fails to pass legislation that Obama agrees to sign.
  
• EU Works on Aid for Irish Banks, Spurns Immediate Package. European finance ministers started work on possible aid for Ireland’s debt-laden banks, stopping short of an immediate bailout package and risking a renewed convulsion on bond markets.
  
• Irish Crisis Punishes European Borrowers as Dollar-Bond Sales Slump. U.S. dollar bond sales by European companies are tumbling as investors avoid the debt on concern the region’s budget deficit crisis may spiral out of control as Ireland comes closer to following Greece in getting a bailout. Borrowers in Europe have raised $1 billion this month selling bonds in the U.S., or 2.1 percent of all investment- grade issuance, the smallest share since at least 1998 and down from $9.3 billion, or 32 percent, in the same period of October, according to data compiled by Bloomberg.
• Swaps on Property and Casualty Insurers Jump on Muni Selloff. The selloff in municipal bonds is helping push the cost to protect the debt of property and casualty insurers to the highest in more than a month. Credit-default swaps on New York-based Travelers Cos. and Chubb Corp. climbed to the highest since October. Municipal securities account for 26 percent of the financial assets of property and casualty insurers, Hans Mikkelsen, credit analyst at Bank of America Corp., wrote in a report yesterday. “Some investors view P&C insurer CDS as hedges against muni risk,” Mikkelsen wrote. Municipal bond prices are dropping amid a surge in issuance. Pacific Investment Management Co.’s Municipal Income Fund has dropped 12.3 percent since Nov. 3, when the Federal Reserve said it would undertake a round of quantitative easing, known as QE2, by buying $600 billion in U.S. debt. The cost to protect Travelers jumped 7.4 basis points to 92.2, the highest since Oct. 6, according to data provider CMA. Its investments in municipal debt were $41.4 billion as of Sept. 30, or 63 percent of the company’s fixed-maturity total, according to an Oct. 21 regulatory filing. Swaps on Chubb, which is based in Warren, New Jersey, climbed 8.3 basis points to 67. Contracts on Boston-based Liberty Mutual Insurance Co. increased 6.7 basis points to 130.6 and those on Allstate Corp., based in Northbrook, Illinois, gained 9.8 basis points to 87.6.
• Fed May Hesitate on More Easing After Critics Question Employment Mandate. The Federal Reserve is facing the fiercest political assault on its powers in three decades as it struggles to help revive the U.S. economy. The Fed’s plan to expand its purchases of Treasury securities has triggered criticism from Republican lawmakers, some economists who wrote an open letter to the Fed protesting the move, and finance officials in Germany, China and Brazil. While central bank officials are pressing ahead with the $600 billion bond-buying program announced this month, analysts said the criticism may fan dissent within the Fed over the quantitative-easing policy. That may limit Chairman Ben S. Bernanke’s ability to take further measures if the economy remains weak.
• China's Stocks Drop as Wen's Speech Boosts Rate, Price Control Speculation. China’s stocks fell after Premier Wen Jiabao said the cabinet is drafting measures to curb rapid price gains, boosting speculation the government may raise interest rates and order price controls to slow inflation.
• Nomura Turns 'Bearish' on Chinese Stocks on Outlook for Tightening Policy. Nomura Holdings Inc. is turning “bearish” on China’s yuan-denominated shares, saying that the government may order price controls and “more draconian’” measures to curb accelerating inflation. “The likelihood of a re-introduction of price controls on food is growing,” Sean Darby, a Hong Kong-based strategist at Nomura, which was ranked first in China research by Institutional Investor magazine in its All-China Research Team poll this year, said in a report today. “The recent run-up in agriculture prices worldwide and signs of hoarding appear to have pushed the authorities to reconsider draconian measures.” “Command style economic principles generally mean much lower multiples over time on the sector and stocks,” said Darby. The Shanghai Composite has fallen 12 percent this year after the government raised bank reserve requirements and curbed lending growth to cool the economy. Stocks on the measure trade at an average 19.2 times reported earnings, compared with 26.4 times at the beginning of the year, according to weekly data compiled by Bloomberg.
• China Stock Index Volatility at Six-Month High Means 'Stay Put', CICC Says. China stocks volatility jumped to the highest in six months, spurring China International Capital Corp. to recommend that investors refrain from buying equities as the government intensifies measures to contain inflation. “Investors should stay put,” Hao Hong, a Beijing-based global strategist at CICC, the top-ranked brokerage for China research in Asiamoney’s annual survey, wrote in a report. “Fundamental volatility hasn’t been reflected yet. Inflation risks haven’t been priced in.”
• Commodities Cap Biggest Five-Day Slide Since 2009 as China May Slow Buying. Commodities capped the biggest five- session slide since July 2009 on concern that China will seek to slow its economic growth, curbing raw-material demand in the country that is leading the global recovery. The Thomson Reuters/Jefferies CRB Index of 19 raw materials fell 3.2 percent to settle at 296.22 at 5:34 p.m. in New York. The gauge has dropped 7.2 percent since Nov. 9, the biggest five-session decline since July 2009. Premier Wen Jiabao said today the cabinet is drafting measures to counter the fastest inflation in two years. China may impose price limits on food and toughen punishment for those found speculating on agriculture, the China Securities Journal said, citing an unidentified person. “Some of the bullish catalysts have shrunk with the idea that the dollar is on much more firm footing,” said James Cordier, a portfolio manager at OptionSellers.com in Tampa, Florida. “What we’re seeing today is what happens when you have a crowded space, like commodities have been, get a little bit of negative news, and everyone hits the exit at the same time.” Cotton is up 71 percent this year, the most among futures tracked by the CRB, followed by silver, up 50 percent, and coffee, up 47 percent.
• China's Nickel Pig Iron Production to Increase by 6.2% in 2011, CRU Says. China’s production of nickel pig iron will rise 6.2 percent to 155,000 metric tons next year, with Chinese stainless steel producers substituting about one- third of primary nickel with the cheaper alternative, CRU said.
• Cotton, Sugar, Soybean Futures in China Drop by Limit on Inflation Concern. China agriculture futures including soybeans, sugar and cotton tumbled by the daily limit on concern the government will curb speculation and take additional measures to limit inflation. Soybeans and soybean oil for September delivery both dropped 4 percent to 4,337 yuan a metric ton and 9,396 yuan, respectively, on the Dalian Commodity Exchange. Cotton for May delivery slumped 5 percent to 27,090 yuan a ton and sugar for September shipment also fell 5 percent to 6,196 yuan on the Zhengzhou Commodity Exchange.
• Emerging Markets ETF Put Trading Advances to a Five-Month High in the U.S. Trading of bearish emerging-market stock options jumped to a five-month high in the U.S. yesterday as investors boosted buying of the contracts to protect against losses in the shares amid a global equity retreat. More than 465,000 puts to sell shares of the iShares MSCI Emerging Markets exchange-traded fund changed hands, 3.6 times the four-week average and triple the number of calls to buy. The most-active contracts were December $44 puts, which rose 58 percent and accounted for a quarter of put trades.
• Banks Balancing Competing Foreclosure Interests, Executives Tell Senators. Bank of America Corp. and JPMorgan Chase & Co. must balance the interests of homeowners and investors in handling foreclosures, executives from both companies told lawmakers at a U.S. Senate hearing.
• US Video-Game Sales Decline for Seventh Month, Led by Slump in Hardware. U.S. video-game sales fell for the seventh month in a row, as slumping demand for consoles and other hardware dragged industry revenue down by 4 percent. Hardware sales sank 26 percent to $280 million, researcher NPD Group Inc. said today in a statement.
• Bernanke's 'Cheap Money' Stimulus Spurs Corporate Investment Outside U.S. Southern Copper Corp., a Phoenix- based mining company that boasts some of the industry’s largest copper reserves, plans to invest $800 million this year in projects such as a new smelter and a more efficient natural-gas furnace. Such spending sounds like just what the Federal Reserve had in mind in 2008 when it cut interest rates to near zero and started buying $1.7 trillion in securities to spur job growth. Yet Southern Copper, which raised $1.5 billion in an April debt offering, will use that money at its mines in Mexico and Peru, not the U.S., said Juan Rebolledo, spokesman for parent Grupo Mexico SAB de CV of Mexico City. Southern Copper’s plans illustrate why the Fed’s second round of bond buying may not reduce unemployment, which has stalled near a 26-year high. Chairman Ben S. Bernanke and his colleagues appear to be fueling a foreign-investment surge, underscoring the difficulty of stimulating the economy through monetary policy with interest rates already near record lows. “You’re seeing leakage from quantitative easing,” said Stephen Wood, chief market strategist for Russell Investments in New York, which has $140 billion under management. “That leakage is going into emerging markets, commodity-based economies, commodities themselves and non-U.S. opportunities.”

Wall Street Journal:

• Sweeping Irish Aid Package in Works. Senior European officials laid the groundwork for a bailout of Ireland that could reach €100 billion ($136 billion), saying experts would travel this week to Dublin to examine the country's finances amid alarm about the dire straits of the Irish banking system.
  
• Pressure Builds Over Loan Modifying. State attorneys general are intensifying pressure on lenders to fix the system they use to modify mortgages as part of a potential settlement in their multistate investigation of the foreclosure problems. The attorneys general are scrutinizing whether home-loan servicers violated state laws against deceptive practices by using "robo signers" to submit affidavits and foreclosure documents without confirming the paperwork's accuracy. But the states' investigation, which could lead to civil charges, already has expanded to include other issues, such as the fees charged by servicers.
• Another Deficit Plan Targets Taxes. A panel of Democrats, Republicans, economists and other experts is set to say Wednesday that a complete overhaul of the U.S. tax code is the best way to address the nation's fiscal problems—a new and likely controversial idea aimed at tackling the growing deficit.
• Obama's Overture to Business Gets Wary Reception From CEOs. The Obama administration's effort to reboot its relationship with the business community ran into a tough crowd Tuesday.
• SEC Circuit Breaker Pilot May Extend as New Limits Debated - Sources. A program to halt trading in volatile U.S. stocks is likely to be extended beyond its expiration date next month, giving regulators and exchanges more time to develop longer-term remedies for the wild price swings seen in the May 6 "flash crash."
• Qualcomm(QCOM) Exec Sees 'Rich' Product Roadmap for Processors. The head of Qualcomm Inc.'s (QCOM) chipset unit said the wireless semiconductor company has plans to tap further the strong demand for mobile devices and fight rivals like Intel Corp. (INTC).
• Pittsburgh Bans Natural-Gas Drilling. Pittsburgh's city council voted 9-0 Tuesday to ban natural-gas drilling within city limits, citing health and environmental concerns, becoming the first city in Pennsylvania state to do so. Many rural towns and landowners around the state have embraced gas exploration into the massive Marcellus Shale formation, as an economic boon.
• The Secret $25 Billion Rival Bid for Potash Corp.(POT). As Potash Corp. of Saskatchewan successfully fought off a $38.6 billion hostile takeover attempt by BHP Billiton, it had some unusual allies: a First Nations group that said it raised $25 billion to defend the company from the Anglo-Australian interlopers.
• Las Vegas Sees Some Recovery, But Gambling Outlook Uncertain. By most accounts and even some measures, Las Vegas seems to be finally bouncing out of its recent trough as visitor traffic improves and casino revenue, at least on the upper end, twitches upward. Certainly, as the industry's annual trade show gets going here this week, Sin City seems livelier than it has over the past few years.

CNBC:

• General Motors to Increase IPO Size by 30%.

Business Insider:

• Chart of the Day: Mortgage Rates Just Hit a Four-Month High.

Zero Hedge:

• It Begins: Detroit Neighboring City of Hamtramck Asks for Permission to File for Bankruptcy.

NY Times:

• Currency Fight With China Divides U.S. Business.

IBD:

• Retail Recovery Resonates With Seller Of In-Store Tech Systems. "For us it's all about helping restaurants focus on doing what they do best: cooking really good food and serving their customers," said Heyman, chief executive of Radiant Systems (RADS). "We try to provide tools that are easy to use and simple to understand."

CNN Money:

• Prices for Used Cars Hit a Record High.

Politico:

• Democrats in Chaos Over Nancy Pelosi's Power. The Democratic old guard will try to hold the line Wednesday against a rank-and-file rebellion intent on winning some concession — no matter how small — from a leadership team seeking reelection despite having presided over the loss of at least 60 Democratic seats earlier this month. The leadership election follows on the heels of a brutally long, contentious and divisive leadership meeting Tuesday, and it will determine not only whether Speaker Nancy Pelosi remains the head of the House Democratic contingent but just how much authority she will wield in the new Congress come January.

Foreign Policy:

• George Soros: China Has Better Functioning Government Than U.S. "There is a really remarkable, rapid shift of power and influence from the United States to China," Mr. Soros said, likening the U.S.'s decline to that of the U.K. after the Second World War. Because global economic power is shifting, Mr. Soros said China needs to change its focus. "China has risen very rapidly by looking out for its own interests," he said. "They have now got to accept responsibility for world order and the interests of other people as well." Mr. Soros even went so far as to say that at times China wields more power than the U.S. because of the political gridlock in Washington. "Today China has not only a more vigorous economy, but actually a better functioning government than the United States," he said

Reuters:

• China Telecom Briefly Hijacked US Web Traffic - Panel. China Telecom sent incorrect routing information last April that resulted in Internet traffic to major corporate websites and U.S. military and government sites being sent through China for 18 minutes, according to a report by a congressional advisory group.
• U.S. Advisers Recommend Human Genome(HGSI) Lupus Drug.
  

Telegraph:

• Greek Rescue Frays as Irish Crisis Drags On. The eurozone bail-out for Greece has begun to unravel after Austria suspended aid contributions over failure to comply with the rescue terms, and Germany warned Athens that its patience was running out. The clash caught markets off-guard and heightened fears that Europe's debt crisis may be escalating, with deep confusion over the Irish crisis as Dublin continues to resist EU pressure to request its own rescue. Olli Rehn, the EU economics commissioner, said escalating rhetoric in Europe was turning dangerous. "I want to call on every responsible European to resist the centrifugal tendencies and existential alarmism."

China Securities Journal:

• China could raise interest rates for a second time this year as soon as Nov. 19, citing an analyst. The central bank may raise rates due to sustained inflationary pressure, the report said. Earlier announcements also indicate that rate decisions are often released on Fridays or around the 20th of the month.

Evening Recommendations
Citigroup:

• Reiterated Buy on (SKS), target $15.

Night Trading

• Asian equity indices are -1.50% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.0 +3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 110.25 +8.25 basis points.
  
• S&P 500 futures +.31%
  
• NASDAQ 100 futures +.36%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WMG)/-.13
• (BJ)/.36
• (NTAP)/.49
• (PETM)/.38
• (CHS)/.15
• (TGT)/.68
• (AMAT)/.31
  

Economic Releases
8:30 am EST

• The Consumer Price Index for October is estimated to rise +.3% versus a +.1% gain in September.
• The CPI Ex Food & Energy for October is estimated to rise+.1% versus unch. in September.
• Housing Starts for October are estimated to fall to 598K versus 610K in September.
• Building Permits for October are estimated to rise to 568K versus 539K in September.
  

10:30 am EST

• Bloomberg consensus estimates call for weekly crude oil inventories unch. this week versus a -3,274,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -750,000 barrels versus a -1,917,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,000,000 barrels versus a -4,972,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus a +.6% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Bullard speaking on future of GSEs, weekly MBA Mortgage Applications report, (UAM) analyst meeting, (QCOM) analyst meeting, (GWW) analyst meeting, Citigroup Credit Conference, BofA Merrill Credit Conference, Deutsche Bank Media/Telecom Conference and the Morgan Stanley Consumer/Retail Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.