Monday Watch

Weekend Headlines

Bloomberg:

• Euro Drops to Eight-Month Low Versus Dollar Before European Crisis Meeting. The euro fell to an eight-month low against the dollar before European finance ministers gather today to weigh the threat of a default in Greece, which is making fresh budget cuts to secure an international bailout. The 17-nation euro slid for a second day ahead of the meeting, at which officials will discuss how to shield banks from the region’s debt crisis and consider increasing a rescue fund. The dollar touched a two-week high versus the yen after a survey showed that sentiment at Japan’s biggest manufacturers remained below levels seen before a record earthquake struck in March. The baht slid to the lowest in more than a year as data showed Thailand’s export growth slowed. Europe’s “crisis will probably be stretched for many, many months,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “A crisis prolonged means the euro will keep sliding.” The euro depreciated to $1.3329 per dollar as of 12:23 p.m. in Tokyo from $1.3387 in New York last week, after declining to $1.3322, its weakest since Jan. 18.
• Greece Approves $8.8 Billion in Austerity. Greece’s government pledged to fire workers as part of a 6.6 billion-euro ($8.8 billion) austerity package designed to help secure a rescue-loan payout and a second European Union-led bailout. The steps outlined by Prime Minister George Papandreou’s administration would leave a 2012 budget deficit equivalent to 6.8 percent of gross domestic product, missing the 6.5 percent goal previously set with the EU, International Monetary Fund and European Central Bank, known as the troika. Troika inspectors agreed to the proposed 2012 budget. The euro dropped to an eight-month low against the dollar before European finance ministers gather today to consider an enhancement to the region’s rescue fund and the risk of a Greek default. Troika members had been squeezing Papandreou for deeper spending cuts as the country’s three-year recession sapped the revenue needed to close the fiscal gap. “Important decisions which need to be taken on a European level depend first and foremost on us,” Papandreou told his ministers last night, according to an e-mailed statement from his office in Athens. “We need to show our dedication to reaching the goals.”
• New York Fed May Demand Liquidity Reports From European Banks. The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe’s sovereign debt crisis, according to two people with knowledge of the matter. Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said. Concern is growing that European lenders may falter as Greece teeters on the brink of default. U.S. Treasury Secretary Timothy F. Geithner has warned that failure to bolster European backstops would threaten “cascading default, bank runs and catastrophic risk” for the global economy. “The Fed is trying to understand what the pressure points are in terms of liquidity and potential risks that are imposed by foreign banks to domestic institutions in our financial system,” said Kevin Petrasic, an attorney at the Washington- based law firm of Paul, Hastings, Janofsky & Walker LLC. “There is a little bit more sense of urgency as a result of what’s going on in Europe.”
• Commodities Record Biggest Quarterly Drop Since 2008 on Economic Turmoil. Commodities posted the biggest quarterly drop since the end of 2008 as bearish data on economies in Europe and China added to concerns that the world will tilt into another recession. This month, European inflation quickened to the fastest since October 2008 amid the region’s sovereign-debt crisis. German retail sales in August fell the most in more than four years. A gauge of Chinese manufacturing shrank for the straight third month, the longest contraction since 2009. A “deadly combination” of economic indicators show the U.S. is heading for a recession, Lakshman Achuthan of the Economic Cycle Research Institute said today. Prices for energy, metals and crops tumbled in September as fiscal woes in Greece mounted, driving worldwide equities lower. In September, corn had the biggest monthly slump since at least 1959, and silver tumbled the most since 1980. “The demand outlook doesn’t look too good with these global concerns in terms of the commodity markets,” Boyd Cruel, a senior analyst at Vision Financial Markets in Chicago, said in a telephone interview. The Standard & Poor’s GSCI index of 24 raw materials fell 2.6 percent to close at 591 at 3:46 p.m. New York time. This quarter, the gauge dropped 11 percent. In September, the measure slumped 12 percent, the most since November 2008.
• Oil Falls, Caps Biggest Quarterly Slump Since 2008 on Bets Demand to Drop. Oil capped the largest quarterly drop since the 2008 financial crisis by tumbling to a one-year low as signs of slowing growth in China, the U.S. and Germany heightened concern that fuel demand will weaken. Futures dropped 3.6 percent after China’s purchasing managers’ index fell for a third month while German retail sales declined in August and U.S. consumer spending slowed. Prices tumbled 17 percent from the end of June, the biggest quarterly decline since the 56 percent plunge during the last three months of 2008. Crude oil for November delivery fell $2.94 to $79.20 a barrel on the New York Mercantile Exchange, the lowest settlement since Sept. 29, 2010. Futures dropped 11 percent this month, the biggest decline since May 2010, and lost 0.8 percent this week. “There are increasing signs that we are tipping into recession and that’s playing into a weaker demand outlook,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. Total products supplied averaged over four weeks, a measure of fuel demand, fell 0.6 percent in the period ended Sept. 23 to 19 million barrels a day, the lowest level since July, the Energy Department reported this week. The Organization of Petroleum Exporting Countries’ oil output in September rose to the highest level since November 2008, as a Saudi cut was outpaced by Iraqi and Libyan gains, a Bloomberg News survey showed. Production increased 75,000 barrels, or 0.3 percent, to average 30.055 million barrels a day, according to the survey of oil companies, producers and analysts.
• Oil Markets Are Balanced, Saudi, Iranian Oil Officials Say. Global oil demand is balanced with supply, said officials from OPEC’s two largest producers Saudi Arabia and Iran, as the group evaluates the outlook for economic growth and the return of Libyan output. Markets are “stable and in balance,” Saudi Arabian Oil Minister Ali Al-Naimi was cited by Asharq Al-Awsat newspaper as saying yesterday in Riyadh. “The kingdom is ready to play a positive role to ensure the stability of the market.” Iran sees no need for the Organization of Petroleum Exporting Countries to raise oil production, given the lack of clarity about global demand, Mohammad Ali Khatibi, the country’s representative to the group, told the state-run Mehr news agency. Oil capped the largest quarterly drop last week since the 2008 financial crisis, tumbling to a one-year low as signs of slowing growth in China, the U.S. and Germany heightened concern demand will weaken. The International Energy Agency cut global oil demand forecasts for this year and next in their latest market reports released last month. OPEC is set to meet in December in Vienna to evaluate supply and demand and consider current production levels.
• Euro Slumps in 3rd Quarter as Crisis, Slow Economy Damp Demand. The euro had its worst quarter against the dollar and the yen in more than a year as concern increased European leaders won’t be able to contain the region’s debt crisis and Greece may default on its debt. The 17-nation currency slumped against the dollar even as Standard & Poor’s cut its U.S. debt rating and as the Federal Reserve set further economic stimulus. The yen rose against all of its 16 major counterparts as the global economy slowed and investors sought refuge. The Swiss franc pared a gain against the euro after the nation’s central bank imposed a currency ceiling. One in four economists surveyed by Bloomberg forecast the European Central Bank will cut interest rates in five days. “The twin stories driving the markets are still the European debt crisis and fears of a global economic downturn,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “All signs are still that the markets are very cautious and risk-averse and that’s helping the dollar and other safe-haven currencies.” The euro dropped 7.7 percent to $1.3387, from $1.4502 on June 30. The shared currency weakened 11.7 percent to 103.12 yen, from 116.84, and touched 101.94 on Sept. 26, the weakest level since June 2001.
• BofA(BAC), JPMorgan(JPM) Proposed Accord Rejected by California's Harris. A proposed nationwide settlement with banks including Bank of America Corp. and JPMorgan Chase & Co. is being rejected by California Attorney General Kamala Harris, who will pursue her own mortgage investigation in the state that had the second-highest foreclosure rate in August. The proposed agreement is “inadequate” and would allow too few California homeowners to stay in their homes, Harris said in a letter yesterday obtained by Bloomberg News.
• U.S. Approves $4.75 Billion in Solar Power Loans on Final Day of Program. The U.S. Energy Department completed $4.75 billion in loan guarantees for four solar projects yesterday, the deadline for a 2005 program funded by the stimulus act. Projects being developed by ProLogis Inc., SunPower Corp. (SPWRA), and First Solar Inc. (FSLR) won U.S. backing, and First Solar and SunPower immediately sold theirs. The guarantees come at the end of a month in which the Energy Department’s program became the center of a political scandal, said Brett Prior, an analyst at GTM Research in Boston. The shift came after Solyndra LLC, a solar company that received $527 million in backing through the same program, closed its doors Aug. 31. During a May 2010 visit to its factory, President Barack Obama said Solyndra showed “the promise of clean energy.” The Fremont, California-based company received the first guarantee under the Energy Department’s program, which was funded by Obama’s 2009 stimulus legislation, and the largest for any manufacturer. It filed for bankruptcy Sept. 6. The four projects approved yesterday join 25 solar, wind and geothermal companies that have won more than $11.4 billion in loan backing for projects from Maine to Hawaii, including Solyndra, which borrowed $527 million against its $535 million guarantee.
• Syrian Opposition Activists Form Council, Warn of Civil War. Syrian activists formed a council to coordinate efforts to end President Bashar al-Assad’s rule and stop his deadly crackdown that has claimed more than 3,600 lives this year. The so-called Syrian National Council will include the head of Syria’s Muslim Brotherhood, an Islamic political party banned in the country, as well as Kurdish and other groups, Burhan Ghaliun, a political sociologist at Paris’s Sorbonne University and member of the council, told reporters in Istanbul today. Assad’s crackdown on dissenters threatens the country with civil war, he said.
• Global Ad Spending Growth Slowed in Second Quarter, Nielsen Says. Advertising spending declined in almost half of the world’s most important media markets in the second quarter, deflating global growth, as economic concerns crimped sales, according to Nielsen Holdings NV. Sixteen of 36 major markets, mainly in Europe, experienced a decline, while Asian countries posted a 9.3 percent increase, Nielsen said. Overall ad spending rose by 5.7 percent in the quarter, compared with 8.9 percent in the first three months of the year, to about $127 billion, the market research company said in a statement. Advertisers are looking for new avenues of growth as consumer spending stagnates in many developed countries and large corporations cut marketing budgets.
• Schumer Says Overwhelming Support for China Currency Measure. Senator Charles Schumer said overwhelming support has emerged in the Senate for legislation letting U.S. companies seek duties on imports from China to compensate for the effects of a weak yuan. “This bill is on a fast track for passage in the Senate,” Schumer, a New York Democrat, said today on a conference call with other lawmakers. “Once it passes the Senate, it’s going to be hard for the House to block it. I’m optimistic this bill can get to the president’s desk.”
• Falling Wages Threatening U.S. as Consumers May Reduce Spending. Take-home pay, adjusted for prices, fell 0.3 percent in August, the third decrease in five months, and personal income dropped for the first time in two years, the Commerce Department reported last week. The declines followed news from the Census Bureau that median household income in 2010 fell to $49,445, the lowest in more than a decade, and the poverty rate jumped to 15.1 percent, a 17-year high. Salary and benefit growth “has been going nowhere,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “One of the key reasons the recovery has stalled is that real incomes have fallen.”
• Australian Manufacturing Index Falls for Third Month. A gauge of Australian manufacturing fell for a third month in September as a surging currency hurt exports and the highest borrowing costs in the developed world curbed demand at home. The manufacturing index dropped to 42.3, the lowest level since June 2009, from 43.3 in August, the Australian Industry Group and PricewaterhouseCoopers said in a survey released today. It was the sixth month in seven the index was below 50, the dividing line between expansion and contraction.
• Japan Tankan Sentiment Below Pre-Quake Level on Global Slump. Sentiment among Japan’s largest manufacturers remains worse than before the March earthquake, signaling concern that weakening global demand will restrain the nation’s recovery. The quarterly Tankan index of sentiment at large manufacturers rose to 2 in September from minus 9 in June, the Bank of Japan said in Tokyo today. The reading was below the reading of 6 in March and in line with the median estimate of 23 economists surveyed by Bloomberg News.
• Hong Kong Banks Face Higher Credit Risks in Midterm, KPMG Says. Hong Kong banks’ credit quality may be at risk over the medium term because of short supply of the local currency caused by strong loan growth last year and rising yuan demand, KPMG LLP said. The city’s banks expanded their gross loan portfolio by 29 percent last year, while total customer deposits only grew 7.5 percent, boosting their loan-to-deposit ratio to 62 percent from 52 percent, KPMG said in a report today. The report follows a Hong Kong Monetary Authority request in April that local lenders reassess credit growth and funding plans. “While Hong Kong’s banking sector has remained highly profitable over the past year, executives recognize that there are some dark clouds on the horizon,” Martin Wardle, head of financial services at KPMG in Hong Kong, wrote in the report. “Liquidity concerns are intensifying, driven by local cross- border dynamics, as well as global economic sentiment.”
• Tokyo Electron Misses Estimate for Machine Orders on Excess Chip Supply. Tokyo Electron Ltd. (8035)’s second-quarter orders fell more than the 20 percent drop estimated by the Japanese semiconductor-equipment maker because of excess chip inventories, Chairman Tetsuro Higashi said.

Wall Street Journal:

• Alibaba CEO 'Interested' in Buying Yahoo(YHOO). Jack Ma, chief executive of Chinese Internet company Alibaba Group Holding Ltd., told an audience at an event at Stanford University on Friday that he was "interested" in buying Yahoo Inc., according to a spokesman for Mr. Ma. At the event, Mr. Ma said he was interested in buying Yahoo and added that private-equity firms and others had approached him as well, said the spokesman. When asked about his friendship with Yahoo director and co-founder Jerry Yang, Mr. Ma said it was business, not personal, according to the spokesman.
• The Long Arm of Debt Stretches into Condo Fees, Car Repos. Lenders and lawyers have a get-tough message for borrowers who think foreclosure gets them off the hook. As The Wall Street Journal reported in a Page One article Saturday, 41 U.S. states and the District of Columbia allow borrowers to be sued for debt that remains if a house is sold at foreclosure for less than the outstanding loan amount. If lenders win in court, these “deficiency judgments” are good in most states for up to 20 years. Hedge funds, private-equity firms and other investors looking for new ways to bet on the battered housing market are hungry for securities created by bundling hundreds of deficiency judgments at a time, say distressed-debt brokers. But deficiency judgments aren’t just for soured mortgages. Lawsuits are also piling up against borrowers who still owe money to the bank after their car is repossessed, according to lawyers for people sued by lenders. In addition, homeowners living in condominium complexes battered by foreclosures are going after unpaid condo-association fees.
• Casino Giants Struggle Against Volatile Credit Markets. Volatile credit markets have made financial maneuvering difficult for debt-burdened casino companies, casino industry financial officers said at a conference Saturday. Credit has become particularly difficult to access in recent weeks, they said. Marc Falcone, the chief financial officer of Station Casinos Inc, said two banks that hold debt his company's debt—Deutsche Bank and J.P. Morgan Chase & Co.—had intended to sell the majority of the loans in the past 30 days.
• Wall Street's New Watcher. Two weeks after moving into a skyscraper near Wall Street to start assembling a muscular new agency overseeing banks and insurers in New York, Benjamin M. Lawsky got a surprise during an introductory meeting with a midlevel manager: His power was even broader than he thought. The 41-year-old former federal prosecutor, who spent the last four years as Andrew Cuomo's confidant and adviser in the New York attorney general's office, learned that he had greater latitude to pursue criminal fraud cases than he initially knew. As the head of the New York State Department of Financial Services, which officially opens its doors Monday, he says he plans to use that authority to put the new agency on the map.

Marketwatch.com:

• Internet Investors Brace For Hit To Chinese IPOs. Ownership structure popular with tech companies under threat. Chinese Internet companies may need to curtail their listing ambitions following revelations authorities are no longer willing to look the other way on foreign ownership in sensitive sectors.

CNBC:

• 700 Arrested After Protest on NY's Brooklyn Bridge. More than 700 protesters demonstrating against corporate greed, global warming and social inequality, among other grievances, were arrested Saturday after they swarmed the Brooklyn Bridge and shut down a lane of traffic for several hours in a tense confrontation with police. The group Occupy Wall Street has been camped out in a plaza in Manhattan's Financial District for nearly two weeks staging various marches, and had orchestrated an impromptu trek to Brooklyn on Saturday afternoon. They walked in thick rows on the sidewalk up to the bridge, where some demonstrators spilled onto the roadway after being told to stay on the pedestrian pathway, police said. The majority of those arrested were given citations for disorderly conduct and were released, police said.
• After Steve Jobs: Cook's Time to Shine with New iPhone.
• ECB's Noyer Doesn't Expect Bigger EFSF. European Central Bank member Christian Noyer said on Monday it is unrealistic to expect an increase in Europe's bailout fund beyond what was agreed in July, but that he is open to schemes that would allow leveraging to expand capacity.

Business Insider:

• Bloomberg: 'We'll See' How Long Wall Street Protests Are Allowed To Continue. "The protesters are protesting against people who make $40-50,000 a year and are struggling to make ends meet. That's the bottom line," he said.
• German Finance Minister: We're Giving $283 Billion To The EFSF And "That's It. Finished."
• Why Everyone Suddenly Started Freaking Out About China This Week.
  

Zero Hedge:

• Third Point Down 3.6% In September.
• Goldman's(GS) Jim O'Neill: "Let's Worry About Everything".
• Are Things About To Get Even Worse for China?
• Currency Peg Causes 50% Surge In Swiss National Bank Balance Sheet, Major FX Losses.

LA Times:

• Amid Poverty, Chinese Officials Splurge on Lavish Vanity Projects. Reporting from Wangjiang, China— There are no highways running through this impoverished rural county. Children study in dilapidated schoolhouses. On many streets, you're just as likely to run into a chicken as you are a pedestrian.
  Yet the Wangjiang local government is constructing a headquarters on a slab of land the size of the Pentagon building — a sprawling edifice of granite and glass with a $10-million price tag in a county where the average resident earns $639 a year. "The government building is so grand, but at the same time, many people are still living in poverty here," said Ye Daoman, a local farmer and activist. It's a common phenomenon in China. Like teenagers with their first credit card, local officials armed with cheap state loans and money from land sales are splurging on lavish projects of dubious value. In growth-obsessed China, officials' careers are judged by how well they meet development targets set by Beijing. The easiest and fastest way to juice growth figures is to borrow money and build something. The grander the edifice or attraction, the thinking goes, the more authority it projects.
  

Chicago Tribune:

• CBOE Holds Talks With Other States About Possible Move. The parent of the Chicago Board Options Exchange has held talks with a number of governors and state officials about a possible move of its headquarters to another state after Illinois raised its tax rate, providing another challenge to the city's status as the self-styled "derivatives capital of the world." January's tax increase is seen increasing CBOE Holdings Inc.'s state tax bill by a quarter. Chicago-based CME Group Inc., the world's largest futures exchange operator, is also talking about relocating its headquarters.

Washington Times:

• Wolf: Bending Obamacare's Honesty Curve Downward. The Obama administration’s signature piece of legislation brings a sixth of the U.S. economy under federal control, and the writing is on the wall: Obamacare will collapse under the weight of its own false promises. The only mystery left is whether we will allow America to go down with it.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -23 (see trends).

Reuters:

• China Delays 80% of Railway Construction. China has postponed the building of 80 percent of new railway projects pending clarification of government policies for the sector, a newspaper reported on Saturday. "At present, more than 80 percent of ongoing railway construction projects have been suspended, and the completion of many projects has been pushed back by a year," the 21st Century Business Herald newwspaper said. The government said it would suspend new railway project approvals and launch safety checks on existing equipment to address public anger following a crash on a new high-speed rail line in July which killed 40 people. The Railway Ministry is facing a high debt burden too. It said in August that its total liabilities at the end of June were 2.1 trillion yuan ($329 billion), up by nearly half from the end of 2009 and bringing its liability-to-asset ratio up to 59 percent. "Almost all banks have stopped lending for railway construction," the newspaper cited an unnamed source close to the Railway Ministry as saying. "There is no decision yet on the next move for China's high-speed railways." China has also temporarily stopped all plans with foreign companies to build high-speed railways abroad, the newspaper cited another person who attended a recent high-level meeting as saying. The government came under fire again this week after a collision on Shanghai's rapidly expanding subway injured more than 270 people.
• Greek Budget Draft Sees Deficit Targets Missed. Greece will miss deficit targets set just months ago in a massive bailout package, sources said citing a budget draft being adopted by the cabinet on Sunday, in a setback in Europe's efforts to stave off the country's bankruptcy. The dire forecasts come while inspectors from the International Monetary Fund, EU and European Central Bank, known as the troika, are in Athens scouring the country's books to decide whether to approve a loan tranche, without which Greece could run out of cash this month. Two sources confirmed the new budget numbers, which predict a budget deficit of 8.5 percent of gross domestic product (GDP) for this year and 6.8 percent next year, compared with targets of 7.6 percent for this year and 6.5 percent for 2012. European Union officials say the troika's assessment of Greece's future prospects could determine whether it needs to demand more debt relief from private creditors, a measure that could effectively amount to default. GDP is predicted to fall by 5.5 percent this year and 2.0-2.5 percent next year. Those numbers are in line with recent forecasts by the IMF, but much worse than predictions used to calculate a 109 billion euro ($146 billion) bailout in July, which anticipated Greece posting a 0.6 percent growth next year. The shortfall in the 2011 deficit target means Greece would need almost 2 billion extra euros just to finance its expenses for this year. It also means emergency tax hikes and wage cuts announced in the past two months to hit the target have not been enough to put Greece's finances back on track. The inspectors are widely expected to give a green light to the release of the next 8 billion euro tranche of aid to avoid plunging the euro zone deeper into turmoil. But all eyes will be on their forecasts for 2012-2014. If the inspectors conclude that Greece's recession will continue to be worse than predicted, EU officials have suggested that banks that agreed to write off 21 percent of the value of their Greek debt holdings in July may be forced to take deeper losses. The austerity measures are deeply unpopular, and public sector unions hope that strikes and demonstrations can wreck the Socialist government's resolve to enact them.
• German Conservative MP Says 'Greece is Bankrupt'. Greece is bankrupt and it will most likely need a "haircut" forgiving at least 50 percent of its debt, a leading conservative member of parliament was quoted saying on Monday. Michael Fuchs, a deputy parliamentary floor leader for Chancellor Angela Merkel's Christian Democrats, told the "Rheinische Post" newspaper that Greece is broke despite all the financial aid from the European Union. "Greece is bankrupt. Probably there is no other way for us other than to accept at least a 50 percent forgiveness of its debts," said Fuchs, who is also the chair of the influential CDU small business group in parliament.
  
• Greece Better Off Out of Euro - German Conservative. The deputy leader of the Christian Social Union, one of three parties in Chancellor Angela Merkel's centre-right coalition, said on Sunday Greece may be better off leaving the euro zone if it cannot restore its fiscal health. Alexander Dobrindt told Deutschlandfunk radio that a Greek exit from the euro would be a last resort measure and that Greece would find it easier to recover outside the currency bloc. "I believe it is a solution, if one wants to bring Greece back into a economically stable competitive condition, that this would be done outside the euro zone," he said, according to an advance text of the interview to be aired on Sunday.

Financial Times:

• Hedging Fuels Commodities and Credit Volatility. Investors have been preparing for the worst in recent weeks, scrambling to hedge themselves against an array of worrying risks – and in the process driving a spike in volatility in currencies, credit and commodities to match what has been seen in equities.

Telegraph:

• Eurozone Teeters on the Verge of a 'Euroquake' if Greek Default is Bungled. More than one in three international investors expect a global economic meltdown within the next 12 months, according to a new Bloomberg poll. Far more - almost 70pc - say the world economy is deteriorating, up from just 18pc four months ago. At the heart of the gloom, of course, is the eurozone, with 90pc of those surveyed judging that the economy of the single currency area is getting worse. One wonders what planet the other 10pc are on. The eurozone is clearly sliding. The European Commission's economic sentiment indicator fell to 95 in September, from 98.4 the month before, plunging at a rate not seen since the Lehman Brothers collapse. German retail sales dropped faster in August than at any time since May 2007. The eurozone – an economy second in size only to the US – is on the brink of a double-dip recession. This grim prognosis, though, is set against a more hideous backdrop – the danger of a "euro-quake". Greece will default. The only question is how the default is managed – indeed, if it is managed at all. A bungled Greek payment failure will spark "contagion", as spooked creditors pull the plug on some big eurozone government, leading to non-payment of wages and benefits, serious social unrest, and a single currency break-up. We face the very real prospect of a major economic shock, the negative impact of which will be felt around the world. Those who've ignored all previous warnings, waving them away by attacking the character of those making them, remain in charge of rescuing Europe from this mess. And they still don't get it. Far from feeling humbled, or contrite that their incoherent currency union is on the verge of disaster - a disaster which could trigger another global slump when we've yet to recover from the last one - the eurozone's architects remain in denial, continuing to question the integrity of those who advocate straight-forward common sense. Common sense now tells us that any "short-term fix" for the eurozone will do nothing to address the basic incompatibilities which have been there since monetary union began. Yet all the current proposals are just that, "extend and pretend" efforts to buy time in the hope that the single currency's inherent contradictions will disappear given the requisite "political will". Europe's policy-making "elite" wants a fully-blown fiscal union and sees this crisis as a way to get there. It is simply not going to happen, because almost no-one outside of the Brussels salons, or the broader EU establishment, wants it. That is the fundamental truth that must be spoken, repeatedly, to power – whatever offence is now caused. Because this currency union experiment, essentially an exercise in bureaucratic megalomania and hubristic nation-building, is about to do serious damage that extends way beyond Europe. A smaller, stronger eurozone might work. For a while. If everyone sticks to the rules. Not that they will in the long-term, of course, because local electorates always take precedence. That's how democracy works. But if the weaker, peripheral nations are now stripped-out, as their electorates want, the euro being reduced to a Franco-German rump, that would provide Europe with a 3-5 year pause for breath, allowing the global economy to recover, before the single currency is consigned, finally and irrevocably, to the dustbin of history.
• Banking Crisis Set to Trigger New Credit Crunch. Credit default swaps on lenders as far afield as China and Australia, countries that until recently seemed immune to the chaos, have doubled in the last two months to levels not seen since the financial crisis. In Europe, French and Belgian government officials are due to meet on Monday to discuss the crisis enveloping Dexia as speculation mounts about a possible break-up of the Franco-Belgian lender. Last week, the cost of insuring Dexia bonds hit an all-time high of 900 basis points, nearly double the level just two months ago, meaning the annual cost to insure €10m (£8.59m) of the bonds is £900,000. "The money ran out in June and what you are seeing now is the beginning of a new credit crunch, except this time it will be truly global, not Western," said one senior London-based credit analyst.

MailOnline:

• Meet the Texan investor who made millions from the credit crunch... and now he's betting Europe will go down the drain. He believes Greece, Portugal, Ireland, Switzerland, Italy and Spain are the countries least likely to be able to pay off their debts. He bought Greek default insurance for 11 basis points - meaning insuring $1m of bonds would cost $1,100 dollars a year. A Greek default would make it pay down its debt by around 70 per cent, meaning every $1,100 bet would net him an astonishing $700,000, Mr Bass said. ‘It may not be the end of the world,’ Mr Bass added. ‘But a lot of people are going to lose a lot of money. Our goal is not to be one of them.

Welt-am-Sonntag:

• Europe must push political integration to end the debt crisis, creating a new form of political "governance" between sovereign states that falls short of setting up a continental "super state," German Finance Minister Wolfgang Schaeuble said in a guest column. Without such enhanced political coordination Germany will loose influence in Europe, Schaeuble states.

Le Monde:

• France would prefer to have Greece buying back part of its debt with financing from a European fund than asking private bondholders, including banks, to contribute more than agreed upon on July 21.

Korea JoongAng Daily:

• CDS Premium Jumps to Alarming Two-Year High. The cost of insuring Korea’s sovereign debt against default spiked more than 90 basis points in September from a month earlier amid the European debt crisis, data showed yesterday. According to the data by the Korea Center for International Finance, the credit default swap (CDS) premium on Korea’s five-year foreign currency bonds closed at 219 basis points on Friday, up 24 basis points from the previous day and 91 basis points from Aug. 31.
  

Weekend Recommendations
Barron's:

• Made positive comments on (TYC), (LOW) and (HPQ).

Night Trading

• Asian indices are -4.0% to -2.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 255.0 +20.0 basis points.
• Asia Pacific Sovereign CDS Index 172.0 +6.0 basis points.
• FTSE-100 futures -1.92%.
  
• S&P 500 futures -.60%.
• NASDAQ 100 futures -.76%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.75

Economic Releases
10:00 am EST

• Construction Spending for August is estimated to fall -.2% versus a -1.3% decline in July.
• ISM Manufacturing for September is estimated to fall to 50.3 versus a reading of 50.6 in August
• ISM Prices Paid for September is estimated to fall to 54.0 versus a reading of 55.5 in August.
  

Afternoon:

• Total Vehicle Sales for September are estimated to rise to 12.6M versus 12.1M in August.

Upcoming Splits

• (EMN) 2-for-1
  

Other Potential Market Movers

• The Fed's Lacker speaking could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and industrial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.