Today's Headlines

Bloomberg:

• Credit Markets Heading for Worst Quarter Since 2008 in Europe. Corporate credit markets are heading for their worst quarter in Europe since the collapse of Lehman Brothers Holdings Inc. in 2008 as the prospect of a Greek default triggering an economic slump weighs on investors. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings climbed more than 400 basis points since July 1, the biggest rise since the fourth-quarter of 2008 when it surged 456 basis points, according to data compiled by Bloomberg. Relative yields on investment-grade company bonds have increased the most on record, Bank of America Merrill Lynch data show. "The stats speak for themselves," said Jim Reid, head of fundamental strategy at Deutsche Bank AG in London. "You've got a situation where if the European authorities drop the ball it could be worse than 2008." Yield spreads on investment-grade bonds have surged 140 basis points since the start of the quarter to 309 yesterday, the EMU Corporate index of 1,763 securities shows. Markit's Crossover gauge was today up 33.5 basis points to 831.5 basis points, according to JPMorgan Chase & Co. at 12:30 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 7.75 at 198.75 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 10 basis points to 271 basis points and the subordinated index was up 19 at 517. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 4 basis points to 337, with Italy up 11 basis points to 467, according to CMA. One of the biggest sovereign movers worldwide was China, up 18 basis points to 198, after a gauge of manufacturing contracted for a third month as measures of new orders and export demand declined.
• European Inflation Unexpectedly Quickens. European inflation unexpectedly accelerated to the fastest in almost three years in September, complicating the European Central Bank’s task as it fights the region’s worsening sovereign-debt crisis. The euro-area inflation rate jumped to 3 percent this month from 2.5 percent in August, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the biggest annual increase in consumer prices since October 2008. Economists had projected inflation to hold at 2.5 percent, according to the median of 38 estimates in a Bloomberg survey. Faster inflation increases pressure on an economy already hurt by tougher austerity measures and waning investor confidence as governments struggle to contain the fiscal crisis. European economic confidence slumped more than economists forecast this month and German retail sales fell the most in more than four years in August. Commerzbank AG said today that the region “looks set to slip into a recession.”
• Spanish State Fund to Take Over Three More Lenders, Spending $10.2 Billion. The Bank of Spain took over three more lenders after they failed to meet a deadline for new minimum capital requirements set by the government. Spain’s bank rescue fund, known as FROB, will administer banks run by CaixaCatalunya, Novacaixagalicia and Unnim, the regulator said in a statement today. The cost of recapitalizing the three lenders and Caja de Ahorros del Mediterraneo, a failed savings bank seized in July, will be 7.55 billion euros ($10.2 billion), the Bank of Spain said. “I suspect that more recapitalizations will be needed,” Gonzalo Gomez Bengoechea, an economist at the IESE business school in Madrid. “The exposure to sovereign debt may be low, but the real-estate sector increases the uncertainty.”
• Business Activity in U.S. Unexpectedly Accelerates in Sign of Confidence. Business activity in the U.S. unexpectedly accelerated in September, a sign executives are betting the economy will weather recent slumps in stocks and confidence. The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 60.4 this month from 56.5 in August. A level of 50 is the dividing line between expansion and contraction. Economists forecast the gauge would drop to 55, according to the median estimate in a Bloomberg News survey.
• Buffett: BofA(BAC) Needs 'Much Longer' to Clean Up. Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) invested $5 billion in Bank of America Corp. (BAC), said that problems at the biggest U.S. lender by assets will take “much longer” to clean up. “It won’t take six months or a year; it will take much longer than that even. But the underlying business is doing fine.”
• Ingersoll Rand(IR) Tumbles After Cutting Sales, Profit Forecasts. Ingersoll Rand Plc. plunged the most in more than two decades after cutting its full-year sales and profit forecasts amid slowing demand for climate control and residential-security businesses. Shares of the maker of security systems and Trane air conditioners dropped $5.53 to $26.43 at 10:14 a.m. in New York Stock Exchange composite trading, after earlier falling as much as 18 percent, the biggest intraday decline since Oct. 1987. The shares had dropped 32 percent this year before today. Consumer-related businesses such as residential heating and air conditioning, golf and residential security were “significantly affected” in the third quarter, accounting for the lower sales volume, the company said in a statement today. Commercial-security sales were also slower than expected.
• GE(GE) Planning to Build Wind-Turbine Production Facility in Brazil. General Electric Co. (GE), whose equipment generates more than a quarter of the world’s power, will build a 45 million-real ($24.2 million) wind-turbine factory in Brazil’s northeastern state of Bahia, Valor Economico reported. The facility will be able produce 200 turbines a year when it goes into operation in the middle of 2013 and may be expanded, Marcelo Soares, president of the company’s Latin American energy unit, said in an article in the Sao Paulo-based newspaper today.
• Corn Plunges to Three-Month Low on Signs of Slowing Demand; Soybeans Drop. Corn plunged, heading for a record monthly decline, after a government report showed larger U.S. inventories than forecast, signaling reduced demand for the grain used in animal feed and ethanol. Soybeans also declined. Consumption of corn in the U.S., the world’s largest grower and exporter, fell to 2.54 billion bushels in the three months ended Aug. 31 from 2.6 billion a year earlier, the Department of Agriculture said today in a report. Feed use dropped 7.9 percent to 456 million bushels. Prices are down 23 percent since the end of August, heading for the biggest monthly decline on record. “It’s a big negative surprise,” said Gregg Hunt, a market analyst and broker at Archer Financial Services Inc. in Chicago. “The drop in consumption implies that livestock feeders were using other feed sources, including ethanol by-products, and also says that last year’s crop was larger than the USDA estimated.” Corn futures for December delivery plunged 36.75 cents, or 5.8 percent, to $5.9575 a bushel at 10:28 a.m. on the Chicago Board of Trade, after dropping as much as the 40-cent exchange limit to $5.925, the lowest since July 1.
• Crude Oil Heads for Its Biggest Quarterly Decline in New York Since 2008. Oil fell, heading for its largest quarterly decline in New York since the 2008 financial crisis, as signs of slowing growth in China, the U.S. and Germany heightened concerns that fuel demand will suffer. West Texas Intermediate futures have fallen 15 percent this quarter, the biggest drop since the three months ended Dec. 31, 2008. Chinese manufacturing fell for a third month, according to data from HSBC Holdings Plc, while Germany’s Federal Statistics office said retail sales declined the most in more than four months in August. U.S. consumer spending slowed in August as incomes declined, the Commerce Department said today. WTI’s discount to Brent oil narrowed for a sixth day, the longest streak since March 2010. “There is a risk of slowdown in Chinese demand,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, who forecasts Brent prices at $100 in the next quarter. “The risks to the forecast in the fourth quarter and for 2012 as a whole are to the downside.” Crude for November delivery on the New York Mercantile Exchange fell as much as $1.59, or 1.9 percent, to $80.55 a barrel and was at $80.64 at 1:52 p.m. London time. WTI is down 9.2 percent this month. Brent oil for November settlement fell $1.57 to $102.38 a barrel on the ICE Futures Europe exchange in London. Prices are down 9 percent this quarter.
• China Stocks Sink to April 2009 Low as Quarterly Losses Mount on Slowdown. China’s stocks fell, sending the benchmark index to its lowest close since April 2009, on signs growth is slowing as the government maintains measures to curb inflation and overseas demand for exports falters.“Next quarter may see a lot of companies revising down their earnings forecasts amid the slowdown in the economy,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “We are pretty cautious ahead of the weeklong holiday because the risk of Europe’s debt crisis is still there.” The Shanghai Composite sank 15 percent this quarter, the biggest loss since the three months to June 2010, amid concern Greece will default on its debt.
• China's Manufacturing Contracts for Third Month on Orders, Export Demand. A gauge of Chinese manufacturing shrank for a third month, the longest contraction since 2009, as measures of new orders and export demand declined. The reading of 49.9 for the September purchasing managers’ index, released by HSBC Holdings Plc and Markit Economics today, was unchanged from August and compared with a preliminary 49.4 figure published last week. The gauge was below 50, the level that separates expansion from contraction, for eight months through March 2009.
• Google(GOOG) Joins Apple(AAPL) in Push for Tax Holiday. As a coalition led by Apple Inc. (AAPL), Google Inc. (GOOG), and Cisco Systems Inc. (CSCO) presses for a tax holiday on more than $1 trillion in offshore profits, it is turning to a well-positioned lobbyist: Jeffrey Forbes, once chief of staff to Max Baucus, chairman of the tax-writing Senate Finance Committee.
• Fed's Twist Will Fail to Boost Hiring: Poll. Global investors say Federal Reserve Chairman Ben S. Bernanke’s bond-swap program, known as Operation Twist, will fail to reduce unemployment as the world’s largest economy slows. Seventy-eight percent of respondents say the Fed’s plan to replace $400 billion of short-term debt with longer-term Treasuries won’t create jobs for the nation’s 14 million unemployed, according to the quarterly Bloomberg Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. “There’s probably nothing monetary policy can do except keep the psychology of the market positive,” poll respondent Jonathan Sadowsky, chief investment officer of Vaca Creek Asset Management in San Francisco, said in a follow-up interview.
• Obama Standing With Global Investors Plummets to 57% Unfavorable. Global investors’ confidence in President Barack Obama has plummeted over the past four months, with almost three-quarters of them now viewing his policies as a drag on the U.S. business climate. Perceptions of European leaders such as German Chancellor Angela Merkel and French President Nicolas Sarkozy also have turned sharply negative after months of tumult in global financial markets, according to a Bloomberg Global Poll. The quarterly poll, conducted Sept. 26, covered 1,031 investors, traders and analysts who are Bloomberg subscribers. Obama’s overall standing with investors has reversed, with 57 percent now viewing the U.S. president unfavorably compared with 55 percent who saw him favorably in the last poll, in May. “He does not understand the urgency of the debt crisis and its global ripple effect,” poll respondent Scott Troxel, 46, head of the Scandinavian desk at Tradition Group in Lausanne, Switzerland, said in an e-mail. “President Obama must get in front of the problems by taking real risk in achieving a bipartisan solution to long-term debt reduction, credible short- term job stimulus, and tax reform that is more clear and thoughtful than a tax on billionaires.”

Wall Street Journal:

• Top Al Qaeda Figure Killed. Al Qaeda figure Anwar al-Awlaki, one of the most-wanted terrorists on a U.S. target list, has been killed in a CIA drone strike in Yemen, marking another significant blow to the global terrorist group after the assassination of Osama bin Laden earlier this year.
• Greek Crisis Reveals EU's Tragic Flaw. Leaders May Have the Will to Avoid Country's Exit From Euro, but Not the Way.
• Shift in Sentiment Toward China's Internet Darlings. A series of alleged frauds at little-known Chinese companies listed in the U.S. has triggered a stunning shift in sentiment among investors, who are now dumping even the darlings of the Chinese Internet as they focus on hidden business risks.
• EU Welfare Rules May Cost UK GBP2 Bln Annually - UK Minister. The European Commission's move to force the U.K. to change its rules on European Union citizens' eligibility to welfare benefits could cost the country an extra GBP2 billion a year and is further evidence of the EU's push to extend its powers over the U.K., a minister said Friday. "This kind of land grab from the EU has the potential to cause mayhem to nation states, and we will fight it," Work and Pensions Secretary Iain Duncan Smith wrote
• Fed's Fisher: Current Monetary Policy Ineffective in Climate of Uncertainty.
  

CNBC.com:

• JPMorgan(JPM), BofA(BAC) Sued Over Mortgage Debt Losses. JPMorgan Chase and Bank of America were hit with new lawsuits by investors seeking to recover losses on $4.5 billion of soured mortgage debt, expanding the litigation targeting the two largest U.S. banks.
• Norway Oil Find May Be Its Third Biggest Ever. An oil discovery in the North Sea could be the third-biggest find ever made off Norway, oil minnow Lundin Petroleum said after giving new estimates on Friday, breathing life into a mature oil region largely written off by the majors.

Business Insider

• One Of The Best Economic Forecasters Calls For A "New Recession" In The US. Lakshman Achuthan of ECRI told Bloomberg Radio this morning the US is "tipping into a new recession." He told Tom Keene that a recession is the "overwhelming message coming out of our forward-looking indicators." And more ominously: "It is not reversible." "There is virtually nothing that can be done to avert what is going to happen," he said.
• Did Warren Buffett Really Just Throw Obama Under The Bus on CNBC?
• Germany Officially Has More Solar and Wind Power Than It Knows What To Do With.
  

Zero Hedge:

• I'm Hunting Big Game Today: The Squid(GS) On The Spear Tip, Part 1 & Introduction.

LA Times:

• Federal Regulators Bent Rules to Let Banks Repay TARP Money Early. Bank of America, Wells Fargo and PNC Financial's quick exits from the bailout program raise questions about whether government officials put repayment ahead of ensuring that the banks were financially strong enough to survive on their own. The banks pushed for the repayment requirements to be eased in part because they wanted to avoid tough executive compensation restrictions attached to the Troubled Asset Relief Program, according to an audit released Thursday by the special inspector general monitoring the bailout fund.
  

Street Insider:

• Paulson Advantage Fund Said Down -6% for September, -28% on Year.

Gallup:

• Obama Job Approval: 52% Disapprove, 39% Approve. (graph)

Reuters:

• Interview - Starbucks(SBUX) CEO Saw No Summer Weakness. Starbucks Corp's business is "still very strong" despite months of economic turmoil that has weakened sales at other major restaurant chains, Chief Executive Howard Schultz told Reuters on Thursday. "Starbucks is having its best year and our business remains strong," he said in a telephone interview.
• Amazon(AMZN) Tablet Costs $209.63 to Make, IHS Estimates. Amazon.com Inc's new tablet computer costs $209.63 to make, IHS iSuppli estimated on Friday, highlighting how the e-commerce giant is taking a financial hit upfront to get the device into as many hands as possible. Amazon's billionaire Chief Executive Jeff Bezos unveiled the Kindle Fire at a lower-than-expected $199 price on Wednesday.
• Intel Capital: India Tech Start-Up Values Near Bubble. Intel Capital, the investment arm of Intel Corp , the world's biggest chipmaker, believes valuations of early-stage technology companies in India have reached a "near-bubble" stage, as too much capital chases too few quality opportunities. "It's crazy. I am not drawing parallels, but it feels like '99 in the U.S.," said Sudheer Kumar Kuppam, managing director for Asia Pacific at Intel Capital. "This is not a good sign. Most of the time, we evaluate companies and we have to leave it at that stage as we feel valuations were too high," Kuppam told Reuters during a visit to India's financial capital.

Financial Times:

• Greeks Told Protests Could Derail Bailout. The head of Greece’s statistical agency has lashed out against a wildcat strike by employees, warning the protest could derail the approval by international lenders of the next tranche of the country’s bail-out loan. Andreas Georgiou, chairman of Elstat (Hellenic Statistical Agency), told the Financial Times on Friday that he could not provide the figures needed to finalise the 2012 budget because of the walk-out.
• A Guide to China CDS. (graph)
  

Telegraph:

• Nein, Nein, Nein, and the death of EU Fiscal Union. Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a "Yes". This assent was a foregone conclusion, given the backing of the opposition Social Democrats and Greens. In any case, the vote merely ratifies the EU deal reached more than two months ago – itself too little, too late, rendered largely worthless by very fast-moving events. The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer. Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go "this far, and no further". There can be no question of beefing up the EFSF to €2 trillion or any other sum, whether by leverage or other forms of structured trickery. "The financial markets are beginning to ask whether Germans can afford all this help. We must not risk the creditworthiness of the German state," he said.
• China's Facade Disguises Economic Troubles. In Shenzhen shopping mall there are no traces of the global financial crisis, just luxury goods as far as the eye can see. Never mind a two-speed world economy, China is a two-speed country economy all on its own. The woman smilingly showing me round Mixc seems oblivious to the warnings of a Chinese property bubble, the wobbling Hang Seng index and the fact that according to Asia economist Jim Walker, Chinese growth will slow to 0pc next year. "In my experience there is no such thing as a soft landing for an economy," said Mr Walker. "Chinese growth will slow significantly to between 0 and 3pc next year." Mr Walker, founder of economic research company Asianomics, blamed the problems on the Chinese banking sector and the drop in Asian Purchasing Managing Indices (PMI) – the amount that Asian companies are spending.
• Banks Putting Eurozone Rescue at Risk by Refusing to Increase Capital Buffers.
  

Jornal de Negocios:

• Portugal will find it "extremely difficult" to meet its objectives if there is a recession again, Moritz Kraemer, S&P's head of European sovereign ratings, said in an interview.