Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Rising Financial Sector Pessimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 27.11 +10.52%
  
• ISE Sentiment Index 65.0 -22.62%
  
• Total Put/Call 1.24 +26.53%
  
• NYSE Arms 2.14 +149.64%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 119.53 +4.36%
  
• European Financial Sector CDS Index 209.98 +10.52%
  
• Western Europe Sovereign Debt CDS Index 320.0 +2.14%
  
• Emerging Market CDS Index 271.55 +3.78%
  
• 2-Year Swap Spread 31.0 unch.
  
• TED Spread 44.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield -.02% -2 bps
  
• Yield Curve 192.0 -10 bps
  
• China Import Iron Ore Spot $118.40/Metric Tonne +1.28%
  
• Citi US Economic Surprise Index 18.0 +.2 point
  
• 10-Year TIPS Spread 2.11 -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -93 open in Japan
• DAX Futures: Indicating +214 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech, Tech and Medical sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades back below its 200-day moving-average on more Eurozone debt angst, profit-taking, rising global growth worries, rising financial sector pessimism, technical selling and more shorting. On the positive side, Utility, HMO and Restaurant shares are higher on the day. Lumber is up +.71%, the UBS-Bloomberg Ag Spot Index is down -1.45% and Gold is falling -1.09%. On the negative side, Coal, Alt Energy, Oil Tanker, Oil Service, Ag, Steel, I-Bank, Homebuilding and Energy shares are under sigificant pressure, falling more than -3.0%. Cyclial shares are relatively weak. (XLF) has underperformed throughout the day. Oil is flat and copper is dropping 2.06%. The 10-year yield is falling -14 bps to 2.17%. Major European equity indices fell 3-4% today. The Germany sovereign cds is jumping +10.81% to 84.67 bps, the France sovereign cds is surging +10.3% to 176.0 bps, the Spain sovereign cds is climbing +7.97% to 339.17 bps, the Italy sovereign cds is rising +12.5% to 444.33 bps, the China sovereign cds is jumping +6.65% to 125.41 bps, the Belgium sovereign cds is gaining +8.74% to 269.17 bps and the UK sovereign cds is gaining +13.12% to 83.0 bps. Moreover, the European Investment Grade CDS Index is gaining +5.11% to 142.19 bps. Rice is still close to its multi-year high, rising +31.0% in about 4 months. The Italian/German 10-year yield spread surged another +22.21 bps today to 406.79 bps, which is a new all-time high. The TED spread continues to hit new cycle highs and is at the highest since June 2010. The Libor-OIS spread is still very near the widest since July 2010. The 2-Year Euro Swap spread is still very close to its recent highs, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -38.3% since February 16th and -34.6% since Sept. 7th. Given the amount of negative news over the weekend and recent sharp equity gains, US stocks are holding up pretty well so far. I continue to believe investor complacency regarding the intermediate-term situation in Europe, and thus the global economy, is still fairly high. The vast majority of investors appear to believe that hedgie performance-chasing, a "kick the can" European debt "solution" and seasonality will continue to boost stocks substantially into year-end. While I can see one more surge in stocks over the coming weeks, I suspect the rally may falter before year-end as large outperforming funds reposition for 1Q and more global economic uncertainty. I expect US stocks to trade mixed-to-lower into the close from current levels on rising financial sector pessimism, rising European debt angst, global growth fears, profit-taking, more shorting and technical selling.

Today's Headlines

Bloomberg:

• Stocks, Italian Bonds Decline Amid Bailout Concern; Yen Tumbles. Stocks retreated from an almost three-month high as Italian and Spanish bonds fell amid concern European leaders will struggle to raise funds to contain the region’s debt crisis. The yen sank from a post-World War II record against the dollar after Japan intervened in the market. The MSCI All-Country World Index lost 2 percent at 11:51 a.m. New York time, trimming its monthly rally to a record 12 percent, as Deutsche Bank AG (DBK), BNP Paribas SA and Morgan Stanley (MS) dropped more than 5.6 percent. The Standard & Poor’s 500 Index slipped 1.3 percent. Italian five-year yields rose 17 basis points to 5.92 percent. German bunds and U.S. Treasuries advanced. The yen tumbled as much as 4.6 percent against the dollar, the most since 2008. Copper fell 2.3 percent in London. Stocks declined, led by banks, following the biggest weekly gain since 2009 after China’s official news agency Xinhua said the country can’t play the role of “savior” for Europe. Equities rallied on Oct. 26 amid speculation China might invest in the European rescue fund. The yen slumped after Japanese Finance Minister Jun Azumi said the government took steps to weaken the currency. Stocks and commodities also fell after a unit of MF Global Holdings Ltd. (MF) filed for bankruptcy. “Some of that rally that we’ve seen were on comments that China would provide support to Europe,” Mark Bronzo, who helps manage $23 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “If you get a comment saying that they can’t be viewed as a savior, the market will react,” he said. “MF Global declaring bankruptcy is certainly not a positive for the perception about the financial sector.”
• Europe Inflation Unexpectedly Stays at 3%, Jobless Rises. European inflation unexpectedly remained at a three-year high and unemployment increased, complicating the European Central Bank’s task of bolstering the region’s faltering economy. The inflation rate in the euro area held at 3 percent in October, the same as in the previous month, the European Union’s statistics office in Luxembourg said in an initial estimate today. That’s the highest rate since October 2008. European unemployment unexpectedly rose to 10.2 percent in September from 10.1 in August, according to a separate report.
• Spain Economy Stalls in Third Quarter, Adding to Government's Difficulties. The Spanish economy stalled in the third quarter as unemployment surged, adding to the Socialist government’s difficulties three weeks before a general election. Gross domestic product stagnated from the previous quarter, when it grew 0.2 percent, the Bank of Spain in Madrid estimated today. “It will be very difficult to meet the deficit goals without additional austerity, which might push the economy back into recession,” said Ben May, a European economist at Capital Economics in London. Unemployment, which was 21.5 percent in the third quarter, may rise as high as 25 percent, he forecast. The yield on Spain’s benchmark 10-year bond, which touched an intraday euro-era record of 6.46 percent on Aug. 2, rose to 5.65 percent at 10:30 a.m. in Madrid, pushing the premium investors demand to hold Spanish 10-year bonds instead of German debt of the same tenor to 353 basis points. Spain’s Ibex-35 main share index fell 1.3 percent.
• Bond Risk Increases as Doubts Mount Over European Rescue Plan. The cost of insuring against default on corporate and sovereign debt rose in Europe as confidence in the region’s rescue plan waned. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly junk credit ratings jumped 32.5 basis points to 650, according to JPMorgan Chase & Co. at 2:30 p.m. in London. The index dropped 110.5 basis points last week with a decline signaling improved perceptions of credit quality. The region’s largest banks may raise just a tenth of the total capital shortfall estimated by regulators, according to Morgan Stanley. Efforts to boost the bailout fund to 1 trillion euros ($1.4 trillion) with the help of China and cooperation of the International Monetary Fund may also prove difficult. “It’s the traditional reaction where it’s all very exciting at first and then everyone calms down, sobers up and realizes that actually nothing has changed,” Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London, said in an interview on Bloomberg TV’s “The Pulse” with Maryam Nemazee. “At the moment really we don’t know much more than we did before the grand plan.” The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 15 basis points to 305 basis points. Contracts on Italy increased 38 basis points to 443, according to CMA. Spain widened 26 basis points to 342, Ireland rose 28 basis points to 707, and France was 18 higher at 176 basis points. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 9.25 at 159 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added 13.5 basis points to 221 and the subordinated gauge was 26.5 higher at 418.5.
  
• Weidmann Says EU Hasn't Found Lasting Debt-Crisis Solution. European Union countries caught up in the debt crisis must cut budgets and carry out structural reforms to ensure a lasting end to the turmoil, Bundesbank President Jens Weidmann said in a column in Handelsblatt. Putting into practice last week’s EU decisions to recapitalize banks, ease Greece’s debt and leverage the euro area’s rescue fund requires enforcing strict conditionality on any aid, Weidmann, a member of the European Central Bank’s Governing Council, said in a commentary published in the Dusseldorf-based newspaper today. EU leaders left the currency union’s future shape unclear by increasingly taking on joint risk while leaving budget powers with national governments, the German central bank head wrote.
• MF Global Files for Bankcruptcy Protection. MF Global Holdings Ltd., the holding company for the broker-dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy after making bets on European sovereign debt. The New York-based firm listed total debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. Its finance unit, MF Global Finance USA Inc., also filed, with debt of as much as $50 million and assets of as much as $500 million.
• Business Activity in U.S. Grows as Factories Accelerate Economic Recovery. Business activity in the U.S. expanded in October at about the same pace as in the prior month, a sign overseas demand and business investment will help keep the economy expanding. The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 58.4 in October from 60.4 the prior month.
• Oil Pares Biggest Monthly Rally in Two Years as Dollar Climbs. Crude oil dropped in New York as the dollar climbed and equities fell, trimming the biggest monthly gain in more than two years. Futures fell as much as 2.1 percent after Japan stepped in to foreign-exchange markets to weaken the yen against the dollar, making commodities priced in the U.S. currency less attractive to investors. Stocks retreated from a three-month high on concern European leaders will struggle to raise funds to contain the region’s debt crisis. Crude oil for December delivery declined $1.14, or 1.2 percent, to $92.18 a barrel at 10:13 a.m. on the New York Mercantile Exchange. Futures are up 16 percent this month, the biggest gain since May 2009.

Wall Street Journal:

• MF Global(MF): Margin Calls Threatened Liquidity.
• Herman Cain Calls Harassment Allegations 'Totally Baseless'. Herman Cain said Monday he was accused of sexual harassment while head of the National Restaurant Association during the 1990s, but called the allegations “totally baseless and totally false.”

CNBC.com:

• EU Leaders Didn't Listen on Debt: Trichet. Too many European Union leaders did not understand the gravity of the Greek debt situation following years of failure to adhere to rules on borrowing, the outgoing boss of the European Central Bank told CNBC. “I have to say that since the very beginning, it is something that was potentially very important, and again that one should not underestimate the gravity of a situation. We were not, I have to say, pleasing a lot of interlocutors, including the governments that had a tendency to say — no, it's not that important, it's not a big deal — and so forth,” Jean-Claude Trichet said.

Business Insider:

• You Won't BELIEVE How Much Money Jon Corzine Could Walk Away With From MF Global(MF). A major contributor to the firm's downfall: Outsize risks taken by Corzine, as it bet heavily on European debt last year, something that obviously hasn't gone so well. So what happens when the firm goes bust, Corzine leaves, and lots of other people lose their jobs? DealBook reported that Corzine's severance package could allow him to walk away with around $12 million in the event of a sale.
• Now Check Out All The Ways Jon Corzine Is Connected To Democrats And Obama.
• The Complete List of MF Global(MF) Creditors.
• ANOTHER Solyndra: Beacon Power Files For Bankruptcy, Potentially Leaving Taxpayers On The Hook For Millions. Beacon Power, a Massachusetts-based clean energy company, filed for bankruptcy protection on Sunday Reuters reported, potentially leaving taxpayers on the hook for up to $43 million.
• John Hussman Shreds The Latest European Bailout.
  

Zero Hedge:

• Moody's Turns Moody on Europe, Sees Bailout Risks Spreading. Hidden among the detritus of last night's MF headlines and JPY Azumification, Moody's released their Weekly Credit Outlook.
• Demand For EFSF Paper Collapses As World Wakes Up To Post Bailout Hangover.
• Presenting the Bond That Blew Up MF Global(MF). (graph)
  

TickerSense:

• Blogger Sentiment Poll: Bullish 66.67%, Bearish 14.81%.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).

Reuters:

• Italian Yields Jump on Uncertainty Over Euro Plan.

Telegraph:

• The Two Halves of the Eurozone Are Locked In A Broken Marriage. One by one, the democracies of Southern Europe are being broken on the wheel of monetary union.

Sky TG24:

• Italy's labor market reforms may spur violence, Labor Minister Maurizio Sacconi said as European leaders ramped up demand that Italy's government do its part to combat the region's debt crisis. "Today I see a sequence of verbal violence, to spontaneous violence, to organized violence that I hope doesn't lead to death again," Sacconi said in an interview, referring to the 2002 murder of Marco Biagi, an economist who advised the government on changing labor laws.

Talouselaemae:

• Finland is ready to assess adding a clause into European Union treaties on how a country could leave the single currency, citing government documents.

Bear Radar

Style Underperformer:

• Large-Cap Value (-1.62%)

Sector Underperformers:

• 1) Coal -6.04% 2) Oil Service -3.51% 3) Steel -3.40%

Stocks Falling on Unusual Volume:

• BMA, VLO, NIHD, HES, UNS, HNT, IART, CYOU, AUXL, SOHU, DWA, SQI, MSTR, ASML, GMCR, ARII, TZOO, ELGX, ESIO, OPEN, FEIC, AWAY, YHOO, SYMC, CQP, HAE and IART
  

Stocks With Unusual Put Option Activity:

• 1) ALL 2) TGT 3) FXY 4) MOO 5) XLB
  

Stocks With Most Negative News Mentions:

• 1) SNDK 2) ACI 3) FOSL 4) CP 5) TREX
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (-1.0%)

Sector Outperformers:

• 1) HMOs +.48% 2) Restaurants +.27% 3) REITS -.23%

Stocks Rising on Unusual Volume:

• MNTA, SPPI, VPRT, HRBN, BGS, HUM and SHAW
  

Stocks With Unusual Call Option Activity:

• 1) BBBY 2) DISH 3) HLF 4) BBY 5) WDC
  

Stocks With Most Positive News Mentions:

• 1) ACI 2) KEG 3) JNPR 4) LMT 5) BLL
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Monday Watch

Weekend Headlines
Bloomberg:

• EU May Struggle to Keep Euphoria as Scrutiny Deepens Following Debt Summit. European leaders may struggle to maintain the euphoria that drove the euro to its biggest one-day gain in more than a year as scrutiny deepens on their latest attempt to stem the region’s turmoil. European Central Bank President Jean-Claude Trichet called for “swift implementation” if financial stability is to be restored, Germany’s Bild Zeitung reported in an extract of an interview to be published tomorrow. The weaknesses of Europe’s common currency area, ranging from its design to a persisting dearth of bank funding and anemic economic growth, weren’t properly addressed in this week’s accord to stem investor panic, said Harvard University economist Kenneth Rogoff and Jonathan Loynes at Capital Economics Ltd. in London. “My read of this is that the markets are cheered that they’re still alive,” Rogoff, a former International Monetary Fund chief economist, said as a compensated speaker at the Bloomberg FX11 Summit in New York Oct. 27. “Even in a fairly short period, doubts will start to grow again.”
• Europe Seeking Crisis-Fighting Funds Faces Resistance Before Cannes G-20. European governments are running into initial resistance as they seek to use this week’s Group of 20 summit to turn early praise for their revamped crisis- fighting strategy into financial support. The G-20 leaders convene Nov. 3-4 in Cannes, France, a week after euro-area authorities pledged to magnify the capacity of their rescue fund to 1 trillion euros ($1.4 trillion) and look beyond their borders for help in doing so as they combat the debt turmoil posing the biggest threat to global growth. While the help of China and cooperation of the International Monetary Fund were immediately sought, pledges of hard cash are proving hard to come by as G-20 members press for more details of the plan. In an indication Europe may eventually prevail, an official in Brazil’s government said it’s in talks with Russia, India, China and South Africa -- the so-called BRICS -- about possible joint assistance. “Unless European leaders can flesh out some of these details very quickly, it’s hard to see the rest of the G-20 coming on board with very great enthusiasm,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a former IMF economist.
• Europe Might Have Blown Last Chance to End Its Crisis: View. The euphoria over Europe’s latest rescue package faded quickly. Now the question is whether European leaders will ever agree on measures needed to end the sovereign debt crisis, and whether they will get another chance. The magnitude is all wrong. Even if put in place, the plan would reduce Greece’s debt by less than 50 percent, raise about 100 billion euros in new capital and boost the guarantee capacity of the European Financial Stability Facility to about 1 trillion euros. As Bloomberg View has pointed out, sovereign writedowns should be much steeper. And Europe needs a war chest of at least 3 trillion euros to ensure recapitalizations and cover the financing needs of euro-area governments.
• EU Pact Changes Possible Within a Year, German Minister Says. The European Union should be able to construct a new stability agreement within 12 months, German Foreign Minister Guido Westerwelle said in an interview published in the Frankfurter Rundschau and Berliner Zeitung today. The current design of the Economic and Monetary Union is a “toothless tiger” and changes must be made to avoid a new debt crisis every few years, the newspapers quoted Westerwelle as saying. The changes can be made within the next year, he said in the interview.
• China to Demand Concessions for Europe Bailout Fund, NYT Reports. China will probably demand significant concessions from European countries in return for investment in the region’s bailout fund, according to the New York Times, without saying where it got the information. These may include financial guarantees and limits on trade policies, the newspaper reported. China may ask Europe to drop its criticism of its currency valuation policies, according to the report.
• Canada May Boost Asia Oil Sales If Keystone Blocked, Globe Says. Canada will look to boost oil exports to Asian countries such as China if the U.S. blocks TransCanada Corp. (TRP)’s proposed Keystone XL pipeline, the Globe and Mail newspaper reported, citing Canadian Natural Resources Minister Joe Oliver. The $7 billion pipeline would deliver crude from the oil sands of Canada to refineries on the U.S. Gulf Coast. The State Department, which has jurisdiction because the project would cross an international boundary, plans to decide whether to grant approval by year-end. Canada wants to diversify its customer base and China could be a “key” customer in the future, the Globe and Mail reported. “China has emerged as the largest consumer of energy in the world, so it is utterly obvious what we must do,” the newspaper cited Oliver as saying in an interview yesterday. Keystone could be “modified” if it fails to get U.S. approval, or other projects to ship oil to the U.S. could emerge, the newspaper cited Oliver as saying. Oliver will “soon” travel to China to take part in a mining conference, and will discuss energy while he is there, the newspaper reported.
• Funds Lift Bullish Bets Amid Best Rally Since 2009: Commodities. Speculators boosted wagers on higher commodity prices by the most since August as improving prospects for growth in the U.S. and Europe sent prices toward their biggest rally in more than two years. Money managers boosted combined net-long positions across 18 U.S. futures and options by 13 percent to 831,421 contracts in the week ended Oct. 25, Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Index of 24 raw materials has jumped 10 percent in October, on track for the biggest gain since May 2009.
• Yahoo(YHOO) Said to Lean Toward Dividend, Buyback Instead of Sale. Yahoo! Inc. is leaning toward selling its Asian assets and redistributing the proceeds to shareholders, rather than selling itself to a group of buyers, according to five people familiar with the situation.
• Syria Clashes Kill 30, Assad Warns West. In Syria, clashes over the weekend in Syria killed 31 civilians and 30 soldiers, Al Jazeera reported. Any move by the West to interfere in Syria would create “another Afghanistan” Syrian President Bashar al-Assad said in an interview with the U.K.’s Sunday Telegraph newspaper as Arab League foreign ministers called for an end to violence in the country. Foreign intervention in Syria would “burn the entire region,” Assad told the newspaper. “Do you want to see another Afghanistan, or tens of Afghanistans?”
• China to 'Firmly' Maintain Property Curbs: Wen. China will “firmly” maintain its property curbs and “fine tune” other economic policies at an appropriate time, according to a statement following a State Council meeting chaired by Premier Wen Jiabao. Local authorities should continue to strictly implement the central government’s real-estate policies in the coming months to let the citizens see the results of the curbs, according to the statement on Oct. 29. The government will “fine tune” its economic policies by “an appropriate degree and at an appropriate time,” it said. “It demonstrates to local governments and developers the central government’s determination to tighten the property market,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “Property curbs are at the critical stage now, so the policies shouldn’t and wouldn’t be relaxed, because there has been no concrete data showing home prices dropped a lot,” said Shen Jianguang a Hong Kong-based economist at Mizuho Securities Asia Ltd. “But everything else from money supply to investment has fallen a lot.” China’s inflation rate remained above 6 percent for a fourth month in September.
• Sarkozy Attacked in France for Seeking China's Help for Europe. French President Nicolas Sarkozy came under fire from opposition leaders for seeking China's help to resolve the euro area's debt crisis. "It's shocking," Martine Aubry, the general secretary of the Socialist Party, said in the Sunday newspaper, Journal du Dimanche. "The Europeans, by turning to the Chinese, are showing their weakness. How will Europe be able to ask China to stop undervaluing its currency or to accept reciprocal commercial accords?"
• Profits Beat Estimates for 11th Quarter as Analysts See Rally. American companies are beating Wall Street profit estimates for the 11th straight quarter, enough to revive a bull market that analysts say will eclipse any rally in the past 12 years. A total of 220 out of 295 Standard & Poor’s 500 Index companies that reported results since Oct. 11 have exceeded forecasts for the third quarter, according to data compiled by Bloomberg. Price targets for companies in the index from more than 10,000 estimates suggest the S&P 500 will advance 13 percent to 1,447.93 in a year.
• China Shuffles Financial, Securities Regulators. China moved its securities regulator Shang Fulin to head the nation’s banking watchdog, overseeing a 106 trillion-yuan ($17 trillion) industry that includes four of the world’s 10 largest lenders by market value. Shang’s appointment as chairman of the China Banking Regulatory Commission to replace Liu Mingkang is part of the biggest reshuffle of financial officials in a decade. China Construction Bank Corp. Chairman Guo Shuqing will become head of the securities watchdog and Agricultural Bank of China Ltd. Chairman Xiang Junbo will take the top job at the insurance regulator, the government said on Oct. 29.
• MF Global(MF) Faces Pivotal Days as Firm Mulls Sale. MF Global Holdings Ltd., the company run by Jon Corzine that last week reported a record loss, had two of its credit ratings cut to junk and drained bank lines, faces a pivotal few days as the futures broker pitches itself to potential buyers to avert failure.

Wall Street Journal:

• German Finance Minister Plays Down Summit Success. German Finance Minister Wolfgang Schaeuble played down the impact of the European Union's latest deal on stemming the euro-zone debt crisis, according to a pre-release of an interview he gave to Der Spiegel magazine. "The summit last week brought us a good bit further," Schaeuble was quoted as saying. "But it will not have been the last meeting on this issue." Europe still has a long way to go before all of the problems related to the euro-zone debt crisis will be solved, he said. Schaeuble also urged the Italian government to quickly implement the reforms it has announced. "Italy has announced that it is prepared to execute reform, now (these words) must be carried out. Announcements alone don't help," Schaeuble was quoted as saying. He said Italy must reduce its budget deficit, slash public debt, and promote economic growth. "Italy needs structural reforms of its labor market and social security systems," said Schaeuble. "Italy must convince markets that it is willing and determined to quickly address and implement the necessary reforms." Turning to Europe's banks, Schaeuble warned that if banks don't voluntarily participate in the planned swap of Greek bonds in an effort to restructure Greece's debt, they could be forced to do so. "We have always said that we prefer a voluntary haircut," said Schaeuble. "But we have also said that a less consensual path cannot be ruled out." According to Der Spiegel, Schaeuble said the alternative to agreement is disagreement, and that would have considerable consequences for private-sector creditors.
• Radiation Cleanup Confounds Japan. Nearly eight months after the Fukushima Daiichi nuclear accident scattered radioactive material over surrounding communities, Japan still is struggling to figure out how to clean up the mess, exacerbating fears about health risks and fanning mistrust of the government.
• Companies in Europe Are Pulling Back. The financial turmoil rattling governments and banks in Europe is further weighing on the already-sluggish outlook for business in the region. Even though euro-zone governments' latest package of measures to combat the crisis, agreed upon last week, appears to have warded off a financial crash for now, some damage already was done to many companies in Europe. Growing uncertainty regarding the outcome of the turmoil, coming after the global financial crisis and recession, has caused customers to hold off on purchases.
• California's New Green Tax. As the world retreats from cap and trade, Sacramento signs on.
• What Business Wants From Washington. America works best when government creates a stable environment for competition.

Marketwatch.com:

• Iron-Ore Price Drop May Hit Australia Hard. Iron-ore spot prices have come under pressure lately, and a steep, sustained downturn in prices for the industrial resource could have notable implications for the Australian economy.
• Halloween Comes Early for Chinese Real Estate. When dealing with China, action can often speak louder than official numbers, especially when that action involves protests.

CNBC:

• Europe Will Not Offer China Concessions for Aid: Juncker.
• Investors Should Avoid Groupon IPO: Barron's.
  

Business Insider:

• John Mauldin On Europe's Plan With No Details, Portugal Turning Into Greece, And CDSs Needing More Transparency.
• Yen Plunges Big-Time After Japan Intervenes In The Market.
• Meet The Mysterious Trading Firms Who Control The Price Of Commodities.
• After 2 Weeks With Siri, It's Already Changed The Way I Live My Life.
  

Zero Hedge:

• Presenting The Capeless Crusader: The Deficit Super Committee.

LA Times:

• As Many as 13 Americans Killed in Afghanistan Suicide Bombing. As many as 13 Americans were killed Saturday when a suicide bomber struck an armored military bus in Kabul, in the single deadliest attack on U.S. citizens in the Afghan capital since the war began a decade ago.

eWeek:

• YouTube, Google(GOOG) TV Challenging Cable Companies With 100 Channels. Google's YouTube video unit is rolling out 100 professional channels to compete with cable companies. Ideally, users would access Google TV to watch the channels.

Cape Cod Times:

• Luxury Car Lot in China Reflects Debt Crisis. For a glimpse of the unfolding debt crisis that many fear could be China's future, take a trip to the used-car market in this gritty industrial city on the coast. A half-dozen Mercedes-Benzes, an equal number of BMWs, several Porsches, a Range Rover, a Rolls-Royce and a Hummer, most just a few years old and in pristine condition, were there on a recent day. Their owners were all Wenzhou factory bosses who needed to sell their luxury cars for cash to pay back their business loans. "It's because of the credit crisis," said Ma Jianrui, who runs one of the used-car shops and has seen his business booming. "They need money quickly." Many economists fear that the crisis not only could devastate Wenzhou but also may be a portent of what China could be facing on a vastly larger scale: a massive amount of accumulated debt that could rival the subprime crisis in the United States that triggered a larger recession. Most is private debt amassed by small and medium-size companies, economists said, but a portion is personal household debt. Any precise figures are largely guesswork, they said.

Reuters:

• BoE's Tucker: UK's Dip Into Recession Possible - Paper. A double-dip recession in Britain remains "within the bounds of possibility," Bank of England policymaker Paul Tucker was quoted as saying in an interview in the Saturday edition of The Times newspaper.
• Portugal Wants U.S. Help in Euro Crisis: Source. Portugal asked Mexico on Saturday to tell fellow G20 members next week that the United States should offer "financial help" to resolve the euro zone sovereign debt crisis, describing it as a "systemic and global" problem, a Portuguese government source said. Portuguese Prime Minister Pedro Passos Coelho asked Mexican President Felipe Calderon to convey the message during the G20 meeting in Cannes next week, the source told reporters after the two leaders met at the Ibero-American summit in Paraguay. "The crisis isn't in the euro zone. It is a systemic and global crisis and we hope that other big G20 countries intervene," the source told reporters in the capital Asuncion, speaking on condition of anonymity. The source added that Washington should help resolve the crisis "by boosting trade and also with financial help." No one from Calderon's delegation in Asuncion could immediately be reached for comment. Financial markets rallied strongly this week after European leaders hammered out a deal to recapitalize their banks, boost the firepower of a euro zone rescue fund, and impose hefty losses on holders of Greek debt. However, economic analysts quickly warned that details of the rescue could still take weeks or even months to work out. Portugal is suffering a deepening recession as it implements painful austerity measures under a 78-billion-euro ($110.3-billion) EU/IMF bailout.
• Draghi Over-Interpreted on Bond Buys, Says Trichet. Markets have over-interpreted comments by incoming European Central Bank chief Mario Draghi on the bank's readiness to go on buying the bonds of troubled euro zone states, outgoing ECB President Jean-Claude Trichet said. In a wide-ranging interview at the end of his eight-year term, Trichet welcomed what he saw as a commitment by euro zone governments at a summit last week to intervene in bond markets via the EFSF rescue fund to fight the bloc's debt crisis. The ECB embarked on its own bond-buying programme in May of last year but the plan has proven controversial, leading to the resignation of two leading German policymakers at the bank, and Trichet has appeared keen to withdraw from the policy. Draghi seemed to take a different stance last week, appearing to signal that the ECB stood ready to go on buying bonds, intervening in debt markets to lower the borrowing costs of countries snared by the crisis. Trichet said too much had been read into Draghi's comments. "I don't think that Mr Draghi said that," he said of the message understood by financial markets that the ECB would go on buying bonds. "I think there has been an over-interpretation," he added, looking out from the 32nd floor of the ECB's Frankfurt headquarters. The confusion over Draghi's message highlights the importance of communicating ECB policy -- an area where Trichet has largely succeeded, delivering a clean, consistent message that has endeared him to financial markets.

Financial Times:

• Asset Sales a Dilemma for Europe's Banks. European banks are not strong enough to sell off thousand of billions of euros worth of assets without capital injections, says Wilbur Ross, the billionaire investor.
• Schauble Calls for EU Lead on Tobin Tax. Wolfgang Schäuble, Germany’s finance minister, wants the European Union to take the global lead in introducing a financial transaction tax to curb speculative trading, along with tougher regulation of big banks and the “shadow” banking sector, such as hedge funds. If the UK blocked agreement on such a tax in the full EU, he said in an interview with the Financial Times, the eurozone should press ahead on its own.

Telegraph:

• China Warns It Cannot 'Cure' Eurozone's Debt Crisis.
• Why the Latest Eurzone Bail-Out is Destined to Fail Within Weeks. The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So "euroquake" fears, once viewed as outlandish, are gaining pace. Despite Thursday's deal, and all the reassurances of a "durable solution", the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone's third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic. The eurozone must be consolidated. World leaders should similarly force European banks to disclose their losses, we all take the hit and then we move on. Instead, we are served-up, in ever more complex variants, the same "extend and pretend" non-solutions. It gives me no pleasure to write this, but I give this deal two weeks.

Daily Mail:

• Two-thirds of Britons want powers repatriated from the European Union, citing a poll by Harris Interactive.

Der Spiegel:

• German industry opposed letting China help the euro area because the country may use the aid to influence European politics, Hans-Peter Keitel, head of the BDI Federation of German Industries, said. Keitel said Europe needs to achieve stability on its own and it would be a "huge mistake" to allow outside influence, the report said.

Der Tagesspiegel:

• The European debt crisis still threatens growth in European and the U.S., Goldman Sachs Inc.'s(GS) chief economist said in an interview. European economic data remain weak and "contagion is still always a risk" for the U.S. economy, Hatzius said. Goldman forecast a slight recession in the euro area for the fourth quarter of 2011 and first quarter of 2012.

Ansa:

• The European Union and IMF are considering a "safety net" for Italy and Spain, citing a person familiar with the situation. The "contingency plan" is being discussed by international financial institutions, including central banks, to prevent contagion from the debt crisis spreading.

La Repubblica:

• The Italian Banking Authority plans to write a letter of protest after the European Banking Authority called for banks to raise capital. Italian banks don't need $21 billion, double that of French banks and triple the amount for German banks, according to the newspaper.

Il Foglio:

• Austerity 'Isn't in My Vocabulary,' Berlusconi Says. Berlusconi said in a letter published today that he was committed to more effective competition rules, social mobility and not to depressing the economy. The world austerity "isn't in my vocabulary," he wrote.

Corriere della Sera:

• Italy wants to protect jobs and isn't trying to make lay-offs easier, Labor Minister Maurizio Sacconi said in an interview. Italy was asked to revamp its legislation on dismissals in July by institutions including the ECB, citing Sacconi.

The Economic Times:

• Fixing India Trade Imbalance: Import Curbs on China Likely as Deficit Grows. NEW DELHI: India's widening trade gap with China has triggered an alarm in the government, forcing it to brood over a host of measures to restrict imports from the country. The commerce department has hammered out a "China Strategy" that calls for higher tariffs on most Chinese goods while proposing a complete ban on specific items, like power and telecom equipment. It also suggests making it mandatory for Chinese firms to enter into joint ventures with Indian companies before they could import heavy equipment and machinery from the country. The move comes as India's trade deficit with China, its biggest trading partner, jumped 160% to $23.9 billion in the five years to 2010-11.

Beijing Times:

• China's Railway Ministry has delayed payments totaling 130 billion yuan to China Railway Engineering Corp. and China Railway Construction Corp. because it doesn't have the funds, citing Wang Mengzhu, a senior engineer at the Chinese Academy of Engineering. More than 90% of railway construction projects have been suspended due to lack of "capital support" amounting to more than 10,000 kilometers of track, Wang said.

Xinhua:

• China to Maintain Its Family Planning Policy: Official. China will adhere to its family planning policy so as to maintain a low reproduction rate, said the country's family planning chief on Sunday, expected to be the eve of the world's population reaching seven billion. "Over-population remains one of the major challenges to social and economic development," said Li Bin, director of the State Population and Family Planning Commission in an exclusive interview with Xinhua, adding that the population of China will hit 1.45 billion in 2020. Li said maintaining and improving the existing family planning policy and keeping a low reproduction rate, along with addressing the issues of gender imbalance and an aging population, will be the major tasks in the future.

Financial News:

• Ba Shusong, a researcher at the State Council's Development Research Center, said growth of the nation's gross domestic product may be slower as the country's export growth may moderate on "big" impacts from a "more complicated" external economic environment.

Weekend Recommendations

• None of note

Night Trading

• Asian indices are -1.25% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 171.0 +2.5 basis points.
• Asia Pacific Sovereign CDS Index 146.0 -1.25 basis points.
• FTSE-100 futures -.60%.
  
• S&P 500 futures -.67%.
• NASDAQ 100 futures -.69%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SHAW)/.57
• (HUM)/2.03
• (ALL)/.09
• (AVB)/1.18
• (APC)/.66
• (FST)/.26
• (PPS)/.44
• (CNA)/.10

Economic Releases
9:45 am EST

• Chicago Purchasing Manager for October is estimated to fall to 59.0 versus 60.4 in September.

10:30 am EST'

• Dallas Fed Manufacturing Activity for October is estimated to rise to -5.0 versus -14.4 in September.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• None of note
  

BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as profit-taking, global growth worries and technical selling offsets less global debt angst, short-covering and lower food/energy prices. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,285.08 +3.78%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,285.08 +3.78%
  
• DJIA 12,231.10 +3.58%
  
• NASDAQ 2,737.15 +3.78%
  
• Russell 2000 761.0 +6.82%
  
• Wilshire 5000 13,334.20 +4.20%
  
• Russell 1000 Growth 598.07 +3.70%
  
• Russell 1000 Value 637.33 +4.26%
  
• Morgan Stanley Consumer 743.23 +1.45%
  
• Morgan Stanley Cyclical 944.73 +7.03%
• Morgan Stanley Technology 653.60 +4.26%
  
• Transports 5,011.98 +4.12%
  
• Utilities 453.69 +.23%
  
• MSCI Emerging Markets 42.06 +9.81%
  
• Lyxor L/S Equity Long Bias Index 972.84 +.43%
  
• Lyxor L/S Equity Variable Bias Index 832.92 -.08%
  
• Lyxor L/S Equity Short Bias Index 625.54 -1.05%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 128,777 +5.24%
  
• Bloomberg New Highs-Lows Index -136 +318
  
• Bloomberg Crude Oil % Bulls 21.0 -53.3%
  
• CFTC Oil Net Speculative Position 159,718 +10.63%
  
• CFTC Oil Total Open Interest 1,388,897 -2.98%
  
• Total Put/Call .98 +15.29%
  
• OEX Put/Call 1.90 +175.36%
  
• ISE Sentiment 126.0 +17.8%
  
• NYSE Arms .88 -12.87%
  
• Volatility(VIX) 24.53 -21.90%
• S&P 500 Implied Correlation 71.18 -10.11%
  
• G7 Currency Volatility (VXY) 11.99 -9.71%
  
• Smart Money Flow Index 10,755.10 +1.10%
  
• Money Mkt Mutual Fund Assets $2.634 Trillion unch.
  
• AAII % Bulls 43.0 +19.48%
  
• AAII % Bears 25.0 -27.75%

Futures Spot Prices

• CRB Index 323.07 +3.85%
  
• Crude Oil 93.32 +6.79%
  
• Reformulated Gasoline 268.22 -.11%
  
• Natural Gas 3.92 +2.13%
  
• Heating Oil 305.92 +1.33%
  
• Gold 1,747.20 +6.23%
  
• Bloomberg Base Metals 216.58 +8.87%
  
• Copper 370.60 +14.26%
  
• US No. 1 Heavy Melt Scrap Steel 418.33 USD/Ton unch.
  
• China Iron Ore Spot 116.90 USD/Ton -18.02%
  
• UBS-Bloomberg Agriculture 1,592.44 +1.10%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate -10.0% +10 basis points
  
• S&P 500 EPS Estimates (FY 2012 Mean) 109.54 -.47%
  
• Citi US Economic Surprise Index 17.80 +3.0 points
  
• Fed Fund Futures imply 29.7% chance of no change, 70.3% chance of 25 basis point cut on 11/02
• US Dollar Index 75.09 -1.62%
  
• Yield Curve 203.0 +8 basis points
  
• 10-Year US Treasury Yield 2.32% +10 basis points
  
• Federal Reserve's Balance Sheet $2.829 Trillion -.23%
  
• U.S. Sovereign Debt Credit Default Swap 38.30 -11.55%
  
• Illinois Municipal Debt Credit Default Swap 256.0 -4.68%
  
• Western Europe Sovereign Debt Credit Default Swap Index 313.29 -7.33%
• Emerging Markets Sovereign Debt CDS Index 241.83 -10.76%
  
• Saudi Sovereign Debt Credit Default Swap 103.0 -8.46%
• Iraqi 2028 Government Bonds 85.83 +4.76%
• China Blended Corporate Spread Index 648.0 -110 basis points
  
• 10-Year TIPS Spread 2.15% +13 basis points
  
• TED Spread 43.0 +3 basis points
  
• 3-Month Euribor/OIS Spread 78.0 +3 basis points
  
• N. America Investment Grade Credit Default Swap Index 114.54 -12.93%
  
• Euro Financial Sector Credit Default Swap Index 189.98 -14.10%
  
• Emerging Markets Credit Default Swap Index 261.66 -16.39%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 315.0 unch.
  
• M1 Money Supply $2.151 Trillion -.32%
  
• Commercial Paper Outstanding 961.10 +1.20%
  
• 4-Week Moving Average of Jobless Claims 405,500 +.40%
  
• Continuing Claims Unemployment Rate 2.9% unch.
  
• Average 30-Year Mortgage Rate 4.10% -1 basis point
  
• Weekly Mortgage Applications 664.0 +4.88%
  
• Bloomberg Consumer Comfort -51.1 -2.7 points
  
• Weekly Retail Sales +4.50% -20 basis points
  
• Nationwide Gas $3.45/gallon -.02/gallon
  
• U.S. Heating Demand Next 7 Days 16.0% above normal
• Baltic Dry Index 2,091 -3.24%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 35.0 +7.69%
  
• Rail Freight Carloads 254,404 +.42%
  

Best Performing Style

• Small-Cap Growth +7.38%

Worst Performing Style

• Large-Cap Growth +3.70%

Leading Sectors

• Steel +17.43%
  
• Gold & Silver +12.50%
  
• Oil Service +11.73%
  
• HMOs +11.66%
• Networking +10.25%

Lagging Sectors

• Telecom +1.62%
• Wireless +1.18%
  
• Utilities +.23%
• Education -.21%
• Retail -.85%

Weekly High-Volume Stock Gainers (27)

• LNG, TWIN, UIS, HS, SLAB, CYT, SYNA, IRBT, SEMG, RNOW, ETH, UA, MDP, FTNT, ULTI, SWI, SQI, VLTR, HSTM, PRSP, COLB, TNC, AJG, OPNT, PNFP, VLY and GNC
  

Weekly High-Volume Stock Losers (9)

• RMD, APKT, MASI, HGR, VRUS, BRY, ININ, SXCI and AVP
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Rising Slightly into Final Hour on Diminishing Global Growth Worries, Less Tech Sector Pessimism, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 24.67 -3.10%
  
• ISE Sentiment Index 129.0 +17.3%
  
• Total Put/Call 1.02 +13.33%
  
• NYSE Arms .87 +143.53%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 114.54 -1.41%
  
• European Financial Sector CDS Index 191.5 +1.52%
  
• Western Europe Sovereign Debt CDS Index 313.0 +.18%
  
• Emerging Market CDS Index 261.66 +1.51%
  
• 2-Year Swap Spread 31.0 -2 bps
  
• TED Spread 43.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 202.0 -6 bps
  
• China Import Iron Ore Spot $116.90/Metric Tonne -2.75%
  
• Citi US Economic Surprise Index 17.80 +2.6 points
  
• 10-Year TIPS Spread 2.15 -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -10 open in Japan
• DAX Futures: Indicating -2 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Tech and Medical sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short and then added some back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 consolidates recent sharp gains above its 200-day moving-average despite more Eurozone debt angst and profit-taking. On the positive side, Coal, Computer, Internet, Alt Energy, Steel, Disk Drive, Networking and Gaming shares are especially strong, rising more than 1.0%. Tech shares have traded well throughout the day. Lumber is up +.59%, the UBS-Bloomberg Ag Spot Index is down -.7%, oil is dropping -.44% and copper is rising +.4%. The Italy sovereign cds is dropping -5.6% to 394.50 bps, the China sovereign cds is falling -9.67% to 117.48 bps, the Japan sovereign cds is falling -4.6% to 95.84 bps and the US sovereign cds is falling -7.3% to 37.53 bps. Moreover, the European Investment Grade CDS Index is dropping another -5.85% to 135.48 bps. On the negative side, Defense, Utility, I-Bank, Insurance and Education shares are under mild pressure, falling more than -.5%. Small-cap shares are relatively weak. (XLF) has underperformed throughout the day. The 10-year yield is falling -8 bps to 2.32%. The Germany sovereign cds is jumping +7.0% to 76.33 bps, the Russia sovereign cds is gaining +2.2% to 190.33 bps and the UK sovereign cds is gaining +2.84% to 73.17 bps. Moreover, the California municipal cds is jumping +9.3% to 220.25 bps. Rice is still close to its multi-year high, rising +32.0% in about 15 weeks. The Italian/German 10-year yield spread surged +17.96 bps today to 384.58 bps, which is approaching the Oct. 20 record of 402.03 bps. The TED spread continues to hit new cycle highs and is at the highest since June 2010. The Libor-OIS spread is still very near the widest since July 2010. The 2-Year Euro Swap spread is still very close to its recent highs, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot continues to pick up downside steam, plunging -39.08% since February 16th and -35.4% since Sept. 7th. Despite major intermediate-term headwinds, I still believe that stocks can build on recent gains over the coming weeks after a brief period of consolidation. I expect US stocks to trade modestly higher into the close from current levels on less tech sector pessimism, diminishing global growth worries, short-covering, less global debt angst and technical buying.

Today's Headlines

Bloomberg:

• European Stocks Surge for Firth Week After Leaders Strike Debt-Crisis. European stocks climbed for a fifth week, the longest stretch of gains in 18 months, after the region’s leaders struck a deal to enact measures to contain the sovereign debt crisis following months of negotiations. An index of banks surged the most since July 2010 as Credit Agricole SA and Deutsche Bank AG jumped more than 19 percent. Kazakhmys Plc (KAZ), Kazakhstan’s biggest copper producer, and SSAB AB (SSABA), the Stockholm-based steelmaker, led basic-resources companies to the largest gain in more than two years. BP Plc, Merck KGaA and Renault SA rallied at least 6 percent after results topped analyst estimates. The Stoxx Europe 600 Index climbed 4.2 percent to 249 this week. The gauge has surged 10 percent in October, heading for its biggest monthly advance since April 2009, amid speculation the economy will evade another recession and Europe will avoid the worst effects of the region’s debt crisis. The measure has risen 16 percent from this year’s low on Sept. 22. “We got the right headlines on solving the euro crisis,” said Lars Rohde, chief executive officer of the Hilleroed, Denmark-based ATP pension fund, which manages about $105 billion. “Stocks are showing strong gains, but the devil still lies in the detail.” European leaders agreed to boost the firepower of the region’s rescue fund to 1 trillion euros ($1.4 trillion) and persuaded bondholders to take 50 percent losses on Greek debt, responding to pressure to come up with a credible plan before next week’s Group of 20 meeting in France.
• Sovereign, Bank Bond Risk Rises in Europe, Reversing Declines. The cost of insuring against default on European sovereign and bank debt rose, reversing earlier declines, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose two basis points to 291 at 4:30 p.m. in London, signaling deterioration in perceptions of credit quality. The index had earlier dropped to the lowest since Aug. 16. Contracts on Germany rose five basis points to 76, according to CMA. Swaps on other countries’ debt pared earlier declines with Spain falling eight basis points to 314, France down two at 156 and Italy 10 basis points lower at 408, according to CMA. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers rose 3.5 basis points to 207.5, according to JPMorgan Chase & Co. in London. The subordinated gauge was 13 lower at 392.5. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 15 basis points to 618 basis points. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 0.25 basis points at 149.75.
• 50% Greek Bond Haircut Viewed as Default Event. European leaders’ agreement on a 50 percent haircut on Greek bonds may create an event of default if investors accept it, Fitch Ratings said in a statement today. “The 50 percent nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria,” the statement said. While the accord is “a necessary step to put the Greek sovereign’s public finances on a more sustainable footing,” Greece will face “significant challenges” including ratios of government debt to gross domestic product at “well over 100 percent even in a positive scenario.” “It’s highly likely that all three rating agencies will classify this restructuring as a technical default,” said Padhraic Garvey, head of developed debt-market strategy at ING Groep NV in Amsterdam. “Even if it’s voluntary, investors are left with a product that’s lower in value to what they originally agreed.”
• Spanish Unemployment Rises to Highest in 15 Years, Undermining Recovery. Spanish unemployment rose to a 15- year high of more than 21 percent, the most in the euro area, as government austerity measures undermine the recovery in the region’s fourth-largest economy. Joblessness increased to 21.5 percent in the third quarter, the National Statistics Institute said today in Madrid. Consumer prices gained 3 percent in October from a year earlier after increasing 3 percent in September, the INE said in a separate report. The last time unemployment rose to this level, in 1996, Spain’s Socialists lost to the opposition People’s Party, which polls indicate will win a general election on Nov. 20. “This forebodes a very negative macroeconomic scenario for the second half of the year,” said Jose Luis Martinez, a strategist for Spain at Citibank in Madrid. “The poor performance of jobs in the services sector and of part-time contracts is particularly striking given the tourist season.” Deputy Finance Minister Jose Manuel Campa blamed the increase on austerity measures taken by regional governments.
• Consumer Spending in U.S. Rises .6%. Consumer spending in the U.S. accelerated in September, helping the world’s largest economy skirt a recession. Purchases increased 0.6 percent, matching the median estimate of 81 economists surveyed by Bloomberg News, after a 0.2 percent gain the prior month, Commerce Department figures showed today in Washington. Incomes rose less than projected, sending the savings rate down to the lowest level in almost four years. Incomes rose 0.1 percent last month after dropping 0.1 percent in August. Economists had forecast incomes would increase 0.3 percent, according to the Bloomberg survey. Wages and salaries climbed 0.3 in September after falling 0.1 percent a month earlier. A 1.4 percent plunge in interest income limited the overall gain. The savings rate fell to 3.6 percent in September, the lowest since December 2007, according to the release. The Fed’s preferred price gauge, which excludes food and fuel costs, was little changed in September from the prior month after rising 0.2 percent the prior month. It was projected to rise 0.1 percent, according to the median forecast of economists surveyed. It was up 1.6 percent over the past 12 months, down from a 1.7 percent gain in the year ended August. The 0.3 percent rise in the employment cost index from July through September was less than projected and followed a 0.7 percent gain in the prior three months, according to figures from the Labor Department. Wages climbed at the slowest pace in a year, while benefit costs were the tamest since 1999.
• Agribank Chief Xiang Quits Amid Speculation of China Financial Reshuffle. Agricultural Bank of China Ltd. (1288) Chairman Xiang Junbo and China Construction Bank Corp. (939) Chairman Guo Shuqing resigned amid speculation that the government plans to appoint new financial regulators. Both resigned to do “state financial work,” the two government-owned banks said in separate statements to the Shanghai and Hong Kong stock exchanges yesterday, without giving details.
• Americans 'Hooked' on Government Benefits. Political dysfunction is often blamed for Congress’s inability to curb the U.S. budget deficit. An even bigger obstacle may be the American public. A record 49 percent of Americans live in a household where someone receives at least one type of government benefit, according to the U.S. Census Bureau. And 63 percent of all federal spending this year will consist of checks written to individuals for which the government receives currently no services, the White House budget office estimates. That’s up from 46 percent in 1975 and 18 percent in 1940. Those figures will climb in coming years. The 75 million baby boomers have only begun their long march into retirement, while President Barack Obama’s health-care overhaul will extend insurance coverage to more than 30 million additional people. “The more households that are benefiting from the programs, the more difficult it is to rein in their costs,” said Bob Bixby, head of the Concord Coalition, an Arlington, Virginia- based group that promotes balanced budgets. “It’s a troubling phenomenon” and “it explains why it’s politically difficult to deal with these things.”

Wall Street Journal:

• Next Act - The Plan Is Put to Test. Will it work? The deal euro-zone leaders hammered out in the early hours of Thursday sparked a world-wide stock rally. But the market moves belied widespread caution about the accord among economists and analysts—and even some of the decision-makers in the debt crisis.
• Potential Suitors Emerge for MF Global(MF). Goldman Sachs, State Street and Macquarie are among the companies considering an acquisition of MF Global or parts of the struggling company, people familiar with the matter said. Some of the companies looking at MF Global have not yet approached the firm; rather, they are assessing internally whether to make a move, the people said. Also, they may not move forward in the end, the people said. There could be several other firms eyeing the company. Potential buyers for MF Global and its pieces are expected to decide on any move quickly, given MF Global’s loss of some customer assets and its declining stock price. On Friday the stock was trading down about 12%.
• The Divider vs. the Thinker. While Obama readies an ugly campaign, Paul Ryan gives a serious account of what ails America.
• Green Shoots? ECRI Leading Index Tick Up. (graph)
  

MarketWatch:

• In Charts: How Post-Recession Recoveries Compare. Graphs of GDP report, consumer confidence, capital goods orders.

CNBC.com:

• Euro Bailout Fund Chief Sees No Quick China Deal. The head of Europe's bailout fund said on Friday he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing but expects the surplus-rich country to continue buying bonds issued by the fund. "I think the EFSF can offer a good product that is commercially interesting," Regling said, adding that China should be assured that the EFSF's triple-A rating is solid.

Business Insider:

• Deutsche Bank: Here's Why We Just Boosted Out Q4 GDP Estimate.
• This is the Story of Why Italy's Getting Crushed.
• An Islamist Gunman Just Attacked The US Embassy in Bosnia.
• Here's The Wild Ending To The Epic World Series Game That You Missed Last Night. (video)
  

Zero Hedge:

• The Global Moral Hazard Dawns: Merkel Says "It Must Be Prevented That Others Come Seeking A Haircut" As Ireland Cuts GDP Forecast.

Washington Post:

• Another Obama Fundraiser is Investor in Car Company That Won Federal $50 Million Loan. An investment firm whose vice chairman has been an adviser and fundraiser for President Obama saw one of its portfolio companies win approval this year for $50 million in loans from the administration’s clean-energy loan program. Washington-based Perseus says its affiliation with James A. Johnson, a major fundraiser for Obama’s campaign, played no role in persuading the Energy Department to award the loan to Vehicle Production Group, a Miami start-up that is manufacturing wheelchair-accessible cars and taxis. Johnson headed Obama’s vice presidential selection committee in 2008 and is the former chairman of housing mortgage giant Fannie Mae. He was listed as a campaign fundraising bundler for Obama in the 2008 race, according to the Center for Responsive Politics, and committed to raising $200,000 to $500,000 for the upcoming presidential race.

NASA:

• U.S. Launches Climate Change, Observation Satellite. NASA and NOAA officials congratulated each other this morning following the successful launch of the NPP spacecraft aboard a Delta II rocket from Vandenberg Air Force Base, Calif. Ken Schwer, NPP Project Manager, led off a news conference this morning about three hours after liftoff. He will be part of the team who will get the spacecraft checked out during the next several weeks so it can begin its Earth observing mission. "Now the future of NPP starts and we look forward to NPP touching the rest of the world," Schwer said.

Reuters:

• High-Yield Bond Funds Draw Record Inflows - EPFR.

Financial Times:

• How Badly Do You Want EFSF First-Loss Protection? The EFSF has opened the kimono a little on how it would work as a sovereign bond insurer. Answers from an updated investor Q&A — especially interesting ones have been bolded by us:
• Sovereign CDS Posterchildren. (graphs) Now that a debate is brewing over survival probability of the European sovereign CDS market itself, FT Alphaville thought it’d be a good idea to look at some more recent trends in order to try to discern where the demand for these financial products has come from.

MailOnline:

• Furious Greeks lampoon German 'overlords' as Nazis with picture of Merkel dressed as an SS guard. Greeks angry at the fate of the euro are comparing the German government with the Nazis who occupied the country in the Second World War. Newspaper cartoons have presented modern-day German officials dressed in Nazi uniform, and a street poster depicts Chancellor Angela Merkel dressed as an officer in Hitler’s regime accompanied with the words: ‘Public nuisance.’

Globe and Mail:

• Italy at Heart of Crisis as Borrowing Costs Climb. Italy’s borrowing costs jumped to record levels on Friday, underlining its vulnerability at the heart of the euro zone debt crisis and skepticism about whether the struggling government of Prime Minister Silvio Berlusconi can deliver vital reforms. The 6.06-per-cent yield paid at an auction of 10-year bonds was the highest since the launch of the euro and not far from the level reached just before the European Central Bank intervened in August to cap Rome’s borrowing costs by buying Italian paper. Italy, the euro zone’s third largest economy, is once more at the centre of the debt crisis, with fears growing that its borrowing costs could rise to levels that overwhelm the capacity of the bloc to provide support amid chronic political instability in Rome.