Evening Headlines
Bloomberg:
- European Banking Risks Are 'Rapidly' Growing, Swedish FSA's Andersson Says. Risks to Europe’s bank industry are “rapidly” mounting as the fallout of Greece’s debt crisis engulfs the whole region, said Martin Andersson, director- general of Sweden’s Financial Supervisory Authority. “We don’t see any positive signs,” Andersson said in an interview in Stockholm yesterday. “Things are getting worse and, of course, then you’re more concerned about liquidity and solvency.” Europe’s debt crisis has reached “a systemic dimension” and needs to be tackled “decisively,” European Central Bank President Jean-Claude Trichet told lawmakers in Brussels this week. Policy makers are debating how to recapitalize the region’s troubled banks as the sovereign debt crisis threatens to wreak havoc on balance sheets, undermining any recovery prospects. “We might end up in a situation similar to what happened in 2008” following the collapse of Lehman Brothers Holdings Inc. (LEHMQ), Andersson said. “And then of course there will be problems with liquidity.” In Sweden, banks need to reduce their reliance on dollar funding, the central bank and Finance Minister Anders Borg have warned. Swedish banks’ efforts to boost capital since 2008 are encouraging, though higher buffers are needed to compensate for dollar funding risks, Andersson said. “The banks now have a better liquidity management,” he said. “They are much more prepared for this uncertainty that’s in the market right now and potentially much worse turbulence.”
- Libor Diverges Most Since 2009 as Europe Leads: Credit Markets. Rates at which the world's banks say they can borrow from each other in dollars are diverging by the most in more than two years, a sign European leaders are still struggling to contain the region's debt crisis. The gap between the highest and lowest reported fixings by 19 contributing banks contributing to the three-month London interbank offered rate reached 18.5 basis points yesterday, the widest since September 2009.
- Swaps Registrants Would Have to Vouch for Capability in SEC Rule. Securities-based swap dealers and large swap participants would need to have senior officers certify their ability to participate in the $601 trillion market under registration rules proposed by the U.S. Securities and Exchange Commission. SEC commissioners voted 3-1 yesterday to seek comment on a Dodd-Frank Act rule that calls on firms to certify operational and compliance capabilities and ensure trades aren’t conducted by people who are “statutorily disqualified.”
- China Inflation Proves 'Stubborn' on Way Down. China's inflation, which has exceeded the government's target each month this year, is moderating more slowly than expected as food prices remain high in the biggest pork-consuming nation, according to Citigroup Inc. "Inflation has peaked in July but will cool at a slower pace than we previously estimated because food inflation remains stubborn and may ease very slowing," said Ding Shuang, a Hong Kong-based economist at Citigroup. Elevated prices may encourage officials to keep benchmark interest rates at the highest in about three years after three increases this year. September's inflation may have been pushed up by holiday spending on food and a jump in vegetable prices.
- Oil Declines a Second Day on Outlook for Fuel Demand; Brent Spread Widens. Oil dropped for a second day in New York as investors speculated that fuel consumption will falter on signs of a weakening global economy. Brent’s premium to U.S. prices widened. Futures slipped as much as 1.1 percent after American Petroleum Institute data showed U.S. implied gasoline demand fell the most in more than five years. Reports today may Chinese exports and imports slowed, while U.S. jobless claims rose. Brent oil in London was at the highest premium to New York crude in five weeks. “The economy is showing moderate, sub-trend growth,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “There’s an expectation that the rate of Chinese export growth is declining, reflecting weaker demand internationally. The market will also be focusing closely on the import side of things to get a bearing on Chinese domestic demand.” Crude for November delivery dropped as much as 93 cents to $84.64 a barrel in electronic trading on the New York Mercantile Exchange and was at $85.02 at 12:12 p.m. Sydney time. Implied gasoline demand in the U.S., the world’s biggest oil user, dropped 10.5 percent in the week ended Oct. 7, the API report showed. This is the biggest decline since March 2006. The International Energy Agency yesterday cut its 2012 demand estimate for oil by 210,000 barrels a day and said Libyan output will rebound to 50 percent more than earlier forecast. The North African nation may pump about 600,000 barrels a day of crude oil by the end of the year, up from an earlier estimate of as much as 400,000 barrels, according to the IEA.
- Fisher Says Fed Has 'Done Everything It Can' to Boost Jobs. Federal Reserve Bank of Dallas President Richard Fisher said that while too many Americans remain unable to find jobs, central bankers have done as much as possible to shore up the labor market without sparking inflation. “There are limits to what a central bank can do,” Fisher said during a speech today in Abilene, Texas. “We can provide fuel, but we cannot provide incentives for those who create jobs” to “step on the gas pedal.” The U.S. is struggling with stubborn unemployment even as the central bank “may have overfilled the tank” by providing too much liquidity to the economy, the Dallas Fed chief said. The so-called Operation Twist is not an “effective way” to deal with the economy right now and fiscal authorities, not the central bank, “are the problem,” Fisher said in response to audience questions after his speech. He called lawmakers’ attitude toward U.S. fiscal issues “disgraceful,” and said further monetary accommodation would only encourage Congress to do less.
- U.S. Takes Case Against Iran to UN After Saudi Murder Plot. The Obama administration today gave United Nations diplomats detailed intelligence to support charges that Iran plotted to assassinate Saudi Arabia’s ambassador to the United States. In a possible prelude to a bid for tighter sanctions, U.S. Ambassador to the UN Susan Rice, flanked by officials from the FBI, the CIA and the Justice and State Departments, briefed Security Council members on the evidence. Colombia’s Nestor Osorio said Rice and her Saudi counterpart provided “much more information” about how U.S. law enforcement and intelligence foiled the plot than has been reported in the media.
- Egypt Violence Piles Pressure on Army to Hand Over Power Faster. Egypt’s worst violence since the popular revolt that toppled President Hosni Mubarak in February adds to pressure on the army to speed up the transfer of power to an elected government. Clashes between protesters, mostly Coptic Christians, and security forces in Cairo this week left at least 25 people dead and fueled calls for the ruling generals to change a timeline that may allow them to stay in power until 2013. The violence rocked the government, with Finance Minister Hazem El Beblawi handing in a resignation that was rejected by the army council.
- Hong Kong Inflation Better Than Change to Peg, Greenwood Says. Hong Kong must bear the pain of inflation to maintain the dollar peg because the Chinese city may be worse off with the alternatives, according to John Greenwood, architect of the city’s fixed-exchange-rate system. Hong Kong’s consumer prices excluding distortions from government subsidies rose 6.3 percent in August from a year earlier, the highest rate since the global financial crisis in 2008. Accelerating inflation has highlighted limits on monetary policy in the city, where official interest rates move in sync with those of the U.S. Federal Reserve. “Although inflation is unpleasant, undesirable, it is a lesser cost than having a fluctuating currency such as we had in 1983,” Greenwood, chief economist at Invesco Asset Management, said in an interview in Hong Kong yesterday. “We would be jeopardizing, potentially, a lot of the capital market activities if we have to move to a more volatile currency system.”
- Google(GOOG) Said Not to Plan Acquisition of Akamai(AKAM). Google Inc. (GOOG) isn’t planning to acquire Akamai Technologies Inc. (AKAM), two people familiar with the matter said, countering a report in Business Insider that fueled speculation a takeover may be imminent. The story, which sparked an after-hours surge of as much as 17 percent in Akamai stock, is baseless, said the people, who asked not to be identified. Several people in the advertising technology industry “think Google is about to buy Akamai,” Business Insider reported earlier today. “It’s mostly just a rumor,” according to the report.
- China Offers Loan, Tax Help to Small Companies as Wenzhou Risks Spreading. China announced a package of measures to help small companies, including tax breaks and easier access to bank loans, after the collapse of manufacturers in Wenzhou city highlighted growing risks to the economy. The government will provide financial support and preferential tax policies for small companies, the State Council said in a statement yesterday, after a meeting at which Premier Wen Jiabao presided. The government will be more tolerant of bad loan ratios for small-company loans, the Cabinet said.
- Sony(SNE) Recalls 1.6 Million Bravia TV Sets Because of Fire Risk.
- S. Korea Raises Combat Readiness Near Sea Border, Yonhap Says. South Korea’s military increased combat readiness after spotting unusual military movement by North Korean forces along the western sea border, Yonhap News said, citing a South Korean government official it didn’t identify. South Korea recently detected the relocation of a North Korean ground-to-air missile to the north of Baengnyeong Island near its disputed western sea border, according to Yonhap. North Korea also moved the missile’s mobile launch pad to a base near the sea border and recently fired several missiles off the coast, it said.
- Herman Cain Vaults to Lead in Latest Poll. Former restaurant-industry executive Herman Cain has catapulted to the lead in the race for the Republican presidential nomination, a new Wall Street Journal/NBC News poll finds. Drawn by Mr. Cain's blunt, folksy style in recent debates, 27% of Republican primary voters picked him as their first choice for the nomination, a jump of 22 percentage points from six weeks ago.
- John Malone Now Biggest Landowner in the U.S. Ted Turner has lost his crown. According to the newly released 2011 Land Report 100, which ranks the top land barons, John Malone is now America’s biggest individual landowner. The 70-year-old cable pioneer and chairman of Liberty Media now owns 2.2 million acres, after purchasing more than 1 million acres of timberland in Maine and New Hampshire earlier this year.
- Apple(AAPL), Hollywood in Talks to Allow Movies on iPhones, iPads. Apple Inc. is negotiating with Hollywood studios for deals that would let people who buy movies from the iTunes Store watch streaming versions of those movies on Apple devices such as iPads or iPhones without manually transferring them, according to people familiar with the matter.
- Congress Approves Trade Pacts. Congress passed free-trade agreements Wednesday with South Korea, Colombia and Panama, ending negotiations so nettlesome they likely spell the end of progress on such pacts until after the 2012 election. The House passed all three deals Wednesday evening, and the Senate followed suit. The deals are expected to generate $13 billion in new exports—$11 billion to South Korea—chiefly farm products. As well, they lift a host of non-tariff barriers, including over U.S. professional services.
- France Says It Won't Tap EU to Help Its Banks. The French government is standing by to help recapitalize the country's banks should that become necessary, and won't tap a European rescue fund for that purpose, said a government spokeswoman. Speaking after the weekly cabinet meeting, Valerie Pecresse said that once the expanded European Financial Stability Facility is approved, it "will be able to lend to certain countries that need to recapitalize their banking system, but France won't make use of the EFSF."
- China Sees Wenzhou Lending Crisis Snowball. Chinese city plays risky game of high-interest private lending. Dubbed the nation’s capital of private financing, the city of Wenzhou offers a textbook example of how non-bank lending has fueled private-sector prosperity — and risk-taking — in China. A recent central bank survey said about 60% of all local businesses and the vast majority of households are interconnected through the city’s private-lending system. It’s a tight financial network that interweaves lenders and borrowers collectively, often to their mutual benefit and sometimes to their terrible loss. If only a few debt-ridden companies collapse because they can’t afford to repay the high-rate, short-term loans they’ve gotten from private lenders in the network, the ensuing financial trouble can ripple through the entire credit-connected community, exempting few from turmoil. Since early this year, according to the Wenzhou Public Security Bureau, some major Wenzhou-area private-company owners have fled creditors to avoid repaying loans. In each of these cases, though, the system survived relatively unscathed, and community deal-making continued. Yet a serious domino effect of financial trouble started to endanger the entire system in July, after a well-known entrepreneur named Wang Xiaodong disappeared.
- Some People In China Are Absolutely LOVING Occupy Wall Street. In China, they're calling Occupy Wall Street the "Great Wall Street Revolution," according to Asia Times Online. And by "they" we mean China's New-leftists, a group of people who are upset with the country's capitalist reforms and wish to return to the time of Mao. In the past few days, they've held protests in Luoyang and Zhengzhou (in Henan province) to show their support for the Americans who, they hope, will bring down capitalism once and for all.
- These Funds Are So Bad That Employees Are Suing For Having To Invest In Them.
- Chinese Copper Inventories Revealed To Be Double Estimated.
- Market Slumps After European Banks Admit They Can't/Won't Raise Capital; Will Proceed With Asset Liquidations Instead.
- China Trade Surplus Narrows in Face of Global Woes. China's trade surplus narrowed in September for a second month in a row as growth of exports and imports both fell below forecasts, reflecting global economic weakness and offering Beijing ammunition to resist U.S. pressure on the yuan. Exports increased 17.1 percent last month from a year ago, slowing from a 24.5 percent gain in August, and imports increased 20.9 percent, compared with August's 30.2 percent rise, the customs office said on Thursday. That created a trade surplus of $14.5 billion in September, compared with $17.8 billion in August and $31.5 billion in July. The rolling 12-month trade surplus reached $180.3 billion in September, dipping from $182.7 billion in August. "Export growth in September was much lower than market expectations, showing the sputtering external economy, and we expect the slowing export trend to continue in the coming months," said Wang Hu, an analyst for Guotai Junan Securities in Shanghai. Economists had expected Chinese exports to grow 20.7 percent in September and imports to rise 24.5 percent, bringing the monthly surplus to $16.3 billion. In month-on-month terms, exports fell in September after calendar adjustment by 2.1 percent, versus a decline of 3.3 percent in August and a rise of 5.4 percent in July. That suggested the world's No. 2 economy is feeling the pinch of Europe's worsening debt crisis and slowing growth in the United States.
Financial Times:
- Insurance Plan to Boost Rescue Fund's Reach. European policymakers are moving towards a plan that would enable the eurozone’s €440bn rescue fund to insure investors against some losses on government bonds, arguing it presents the fewest legal and political hurdles to quickly increasing the fund’s firepower.
- Mario Draghi Fears Italian Debt Spiral. Italy risks a debt spiral without "drastic" steps to cut spending and restore confidence in public finances, the country's central bank governor has warned.
- Even a Slovak 'Yes' Will Make No Difference. He also touched on the most neuralgic issue, reminding everybody that the EFSF is "mainly for saving foreign banks". These are French, German, British, Dutch, and Belgian banks, of course. Mr Sulik is right. The EU-IMF rescue loans have not helped Greece pull out of its downward spiral. They have pushed the country further into bankruptcy. Greek public debt will rise from around 120pc of GDP to 160pc under the rescue programme, and the IMF is pencilling in figures above 180pc. The rescue loans have rotated into the hands of creditor banks, life insurers, pension funds, and even a few hedge funds. ECB bond purchases have allowed to investors to dump their holdings at reduced loss, shifting the risk to EMU taxpayers. It is a racket for financial elites. A pickpocketing of taxpayers, including poor Slovak taxpayers. "I’d rather be a pariah in Brussels than have to feel ashamed before my children," he said. Bravo.
- The German finance ministry is assessing the potential impact of losses of up to 50% on Greek bonds, citing government sources. The assessment, which is being coordinated with France, is taking longer than expected and has resulted in a European Union meeting scheduled for Oct. 17 being moved to Oct. 18.
- Top shippers poised to see US$600m loss. Analyst says deficit is likely on fall in demand and freight rates on routes from Asia to North America.
- The room for yuan appreciation in the future may not be "too large" as the currency's exchange rate is gradually moving to a balanced and reasonable level, the China Securities Journal says in a front-page editorial.
Barclays Capital:
- Rated (OC) Overweight, target $37.
- Rated (PHM) Overweight, target $8.
- Rated (IFSIA) Overweight, target $18.
- Rated (LEN) Overweight, target $20.
- Rated (TOL) Overweight, target $21.
- Rated (AWI) Overweight, target $50.
- Asian equity indices are -.50% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 211.0 -10.25 basis points.
- Asia Pacific Sovereign CDS Index 159.50 -.5 basis point.
- FTSE-100 futures -.32%.
- S&P 500 futures +.03%.
- NASDAQ 100 futures +.09%.
Earnings of Note
Company/Estimate
- (FCS)/.32
- (LNN)/.61
- (JPM)/.92
- (FAST)/.33
- (CBSH)/.77
- (GOOG)/8.77
- (VMI)/1.53
- (SWY)/.35
8:30 am EST
- The Trade deficit for August is estimated to widen to -$45.8B versus -$44.8B in July.
- Initial Jobless Claims are estimated to rise to 405K versus 401K the prior week.
- Continuing Claims are estimated to rise to 3710K versus 3700K prior.
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +800,000 barrels versus a -4,679,000 barrel decline the prior week. Distillate supplies are estimated to fall by -500,000 barrels versus a -744,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +250,000 barrels versus a -1,137,000 barrel decline the prior week. Finally, Refinery Utilization is expected to fall -.78% versus a -.10% decline the prior week.
- None of note
- The Fed's Kocherlakota speaking, 30-Year Treasury Bond Auction, weekly Bloomberg Consumer Comfort Index, (GPS) investor meeting, (MJN) investor day, (RIGL) investor day and the (PETM) analyst day could also impact trading today.
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