Today's Headlines

Bloomberg:

• Merkel Signals More Greek Investor Losses. German Chancellor Angela Merkel said that Europe’s rescue fund will only be used as a last resort to save banks and that investors may have to take deeper losses as part of a Greek rescue. Merkel’s comments, her most explicit on banks’ role in fighting the debt crisis since the spillover from Greece began to threaten France and Italy, followed talks with European Commission President Jose Barroso in Brussels today. Financial shares rose amid speculation that euro-area policy makers are working on plans to boost bank capital to contain the crisis. “Time is running out” to establish if recapitalization is necessary, Merkel told reporters. Troubled banks need to first seek capital on their own and national governments will help if that’s not possible, she said. “If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” the European Financial Stability Facility, she said. Using the rescue fund is “always tied to a certain conditionality.” Signals that European politicians may step up efforts to aid banks and push investors to accept bigger losses as part of a Greek bailout reflect international pressure to end the debt crisis and domestic opposition to expanding rescues. Moody’s Investors Service late yesterday followed its three-level downgrade of Italy by warning that euro-area nations rated below the top Aaa level may see their rankings cut.
• Financial Bond Risk Declines in Europe on Bank Support Optimism. The cost of insuring against default on European financial bonds fell on speculation policy makers are planning to shore up the region’s banks to shield them from the sovereign debt crisis. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined 11 basis points to 284 and the subordinated gauge was 16 lower at 537, according to JPMorgan Chase & Co. at 11 a.m. in London. A decline signals improved perceptions of credit quality. The cost of insuring sovereign debt fell, with the Markit iTraxx SovX Western Europe Index dropping two basis points to 347.5, according to CMA. Contracts on Belgium fell one basis point from a record closing price to 308 basis points, while France rose 0.5 basis point to 198.5, according to CMA. Swaps on Dexia fell for a fifth day from a record 900 basis points Sept 28, dropping 19 basis points today to 681. Swaps on Germany declined 4.5 basis points to 198.5, Ireland decreased three to 723 and Spain fell one to 390. Italy rose three basis points to 490 and Portugal increased one basis point to 1,168. The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings fell from a three- year high, dropping 6.25 basis points to 202.75, JPMorgan prices show. The Markit iTraxx Crossover Index linked to 50 companies with mostly high-yield credit ratings dropped 18 basis points to 860.5.
• ADP Estimates U.S. Companies Added 91,000 Jobs in September. Companies in the U.S. added 91,000 jobs in September, according to data from ADP Employer Services. The increase followed a revised 89,000 gain the prior month, Roseland, New Jersey-based ADP said today. The median forecast of economists surveyed by Bloomberg News called for an advance of 75,000. Job gains haven’t been sufficient to bring down the unemployment rate, which has held at or above 9 percent for 26 of the past 28 months. A Labor Department report in two days is projected to show businesses added 90,000 jobs in September, according to the median forecast of economists surveyed.
• Announced Job Cuts in U.S. More Than Triple From Year Ago, Challenger Says. Announced firings jumped 212 percent, the largest increase since January 2009, to 115,730 last month from 37,151 in September 2010, according to Chicago-based Challenger, Gray & Christmas Inc.
• U.S. Service Industries Grew at Slower Pace in Sept. U.S. service industries expanded in September at a slower pace than a month earlier, a sign the recovery is struggling to gain speed. The Institute for Supply Management’s non-manufacturing index fell to 53 from 53.3 in August. The median forecast of 75 economists surveyed by Bloomberg News was for a drop to 52.8. A reading of 50 is the dividing line between expansion and contraction in services, which cover about 90 percent of the economy. Orders picked up, the report showed. The ISM survey showed a bleaker outlook for the labor market. The group’s employment gauge declined to 48.7 in September, the first contraction since August 2010, from 51.6 in the prior month, today’s report showed. The measure of new orders increased to a four-month high of 56.5 in September from 52.8. A measure of business activity rose to 57.1 from 55.6. The index of prices paid decreased to 61.9 from 64.2.
• Crude Oil Increases After Unexpected U.S. Inventory Decline. Oil rose for the first time in four days after the U.S. government reported an unexpected stockpile decline in the world’s biggest crude-consuming country. Futures climbed as much as 4.2 percent after the Energy Department said supplies fell 4.68 million barrels to 336.3 million last week. Inventories were forecast to increase 1.5 million barrels, according to a Bloomberg News survey. Crude oil for November delivery rose $2.68, or 3.5 percent, to $78.35 a barrel at 12:21 a.m. on the New York Mercantile Exchange. Oil traded at $77.77 before the release of the inventory report at 10:30 a.m. Brent oil for November settlement advanced $2.03, or 2 percent, to $101.82 a barrel on the London-based ICE Futures Europe exchange. The contract’s close yesterday represented a 21 percent drop since April 8, when prices ended the session at $126.65 a barrel. A 20 percent drop is the common definition of a bear market.

CNBC.com:

• IMF Official Floats Euro Zone Bond-Buying Idea, Backs Away. An International Monetary Fund official said Wednesday, the global lender could buy Spanish or Italian bonds alongside a euro zone bailout fund, but he later appeared to back away from his own suggestion.
• Greek State Workers Take to Streets to Fight Cuts. Police fired tear gas at stone-throwing youths in central Athens on Wednesday, where thousands of striking state sector workers marched against cuts the government says are needed to save the nation from bankruptcy.

Business Insider:

• The 10 Biggest Hedge Funds in America.
• Chart of the Day: Citi's(C) 'Panic-Euphoria Model' Screams BUY, And There's A 97% Chance Of A Double-Digit Return. (graph)
• The Truth About The iPhone 4S: I Cannot WAIT to Buy One by Henry Blodget.
• Robert Reich: Behind Europe's Debt Crisis Lurks Another Giant Bailout of Wall Street.
• The Chinese Underground Banking System: What It Is And Why It Should Scare You.
  

Reuters:

• Greek Aid Tranche Not Assured But Likely - Troika Source. A team of EU/IMF/ECB inspectors is likely to recommend releasing a vital international aid tranche to Greece but Athens should not take this for granted but first show it will implement reforms, a senior troika official told Reuters on Wednesday. "We are making progress but slow progress. The main reason is they (the government) need more time," the official told Reuters on condition of anonymity. "So far we have not closed any of the chapters."
• Latin American Economies to See 'Modest Worsening' - IMF.
• China Currency Bill Vote Expected Thursday.
• Green Groups Sue to Stop Work on Keystone Oil Pipeline. The Center for Biological Diversity, the Western Nebraska Resources Council and Friends of the Earth sued the U.S. State Department and U.S. Fish and Wildlife Service to stop work they called "illegal construction" on the 1,700 mile (2,740 km) pipeline. Backers of the $7 billion TransCanada Keystone XL pipeline say it will provide jobs and reduce U.S. dependence on oil from countries that are unfriendly to Washington.

Financial Times:

• EU Banks Face New 'Greek' Stress Test. European Union finance ministers have asked the bloc’s leading bank regulator to test the strength of Europe’s banks on the assumption of a big writedown on Greek sovereign debt.

Der Spiegel:

• The Euro Bomb. How A Good Idea Became A Tragedy. The Greek crisis has revealed why the euro is the world's most dangerous currency. The euro was built on a foundation of debt and trickery, where economic principles were sacrificed to romantic political visions. The history of the common currency is the story of a good idea that turned into a tragedy of epic proportions.

Financial Times Deutschland:

• Germany may have to reactivate the Soffin bank-rescue fund to protect lenders, according to Finance Minister Wolfgang Schaeuble.
• German Interior Minister Hans-Peter Friedrich said the country shouldn't cede more power to Europe as a response to the region's fiscal crisis, citing an interview.
  

Expansion:

• Bank of America Merrill Lynch forecasts Spanish savings banks will need another 23 billion euros next year to keep a Tier 1 core capital of 7%, citing a report by Merrill Lynch provided in a London meeting yesterday. The report suggests savings banks have "problematic assets," mainly linked to real estate, valued at 198 billion euros, which may turn into potential losses that will force banks to boost their capital. If core capital for savings banks, known as cajas, is raised to 10%, these lenders would need 47.57 billion euros.