Thursday Watch

Evening Headlines

Bloomberg:

• Spain's Salgado Cuts GDP Forecast, Says Too Early to Know Regions' Deficit. Spanish Finance Minister Elena Salgado said the economy will grow about 0.8 percent this year, less than the government’s target, and it’s too early to know if the regions will meet their deficit goal this year. The new forecast is below the 1.3 percent government target that Salgado had said since August would be hard to meet, and is in line with the estimate of 0.7 percent published by the European Commission last week. Salgado said that while the central government will meet its budget-deficit target, it’s not clear whether the regional governments will do so, casting doubt on the overall budget- deficit goal of 6 percent of gross domestic product. “I maintain 6 percent as the priority,” Salgado said in an interview with Cope, when asked if the goal would be met. “We don’t have the regions’ third-quarter budget data yet.” Spain’s economy stagnated in the third quarter, data showed yesterday, as the unemployment rate approached 23 percent. The yield on Spain’s 10-year bond surged to 6.4 percent, the highest since August before the European Central Bank started propping up the nation’s bond market with debt purchases.
• Moody's Cuts Landesbank Ratings on Lower Likelihood of State Aid. Moody’s Investors Service downgraded the senior debt and deposit ratings of 10 German public-sector banks citing its assumption that “there is now a lower likelihood” that the lenders would get external support. The new bank resolution regime that allows the state to impose losses on creditors outside liquidation is a “key” driver for Moody’s assumptions of “reduced support,” the ratings company said. “With authorities now taking steps that reduce the probability, predictability and likely extent of future support, Moody’s has removed some of this extraordinary support” that it factored into the ratings, it said.
• Weil: UniCredit Bombshell Shouldn't Be the Last One. Everyone in the world who pays any attention to the financial markets seems to know that the balance sheets of European banks are a joke. All you have to do is compare the stock prices of these companies with the book values on their balance sheets to see that. On average the shares of the 32 companies in the Euro Stoxx Banks Index trade for about 44 percent of book value, or common shareholder equity, according to data compiled by Bloomberg.
• France, Spain Sales Test Contagion as Yields Ascend: Euro Credit. France and Spain sell 12.2 billion euros of bonds today in a test of investor demand as surging borrowing costs infect the region's core.
  
• Money-Market Spreads Surge to Two-year High on Europe Crisis. Investor demand for the relative safety of Treasuries during the European debt crisis has sent the difference between U.S. short-term yields and credit-market rates surging to levels not seen in more than two years. The gap between the London interbank offered rate and the overnight index swap, or what traders expect Federal Reserve’s benchmark to be over the term of the contract, widened to 38 basis points as of 9:58 a.m. in Tokyo. It was the highest level since June 2009. U.S. five-year swap spreads climbed to 45 basis points, the most since August 2009. “It’s a flight to safety,” said Akira Takei, head of the international fixed-income department at Mizuho Asset Management Co. in Tokyo, which has the equivalent of $42.7 billion in assets. “I have quite a bullish view on U.S. Treasuries. The market is quite risk-averse.” The TED spread, the difference between what lenders and the U.S. government pay to borrow for three months, widened to 47 basis points, or 0.47 percentage point. It was the most since June 2010. Two-year swap spreads increased to 52 basis points today, the most since May 2010.
• IMF Europe Unit Chief Quits One Year Into Job. The head of the International Monetary Fund’s European department quit less than a year into the job and was replaced by a veteran staffer as the European debt crisis worsens. Antonio Borges, a Portuguese native whose unit oversees bailouts in the euro region, resigned for “personal reasons,” the Washington-based IMF said today in an e-mailed statement. His successor is Reza Moghadam, who has made his career at the fund and headed the strategy department.
• U.S. Banks Face Contagion Risk From Europe Crisis, Fitch Says. U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe's debt crisis deepens and spreads beyond the five most-troubled nations, Fitch Ratings said. “Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said yesterday in a statement. Even as U.S. banks have “manageable” exposure to stressed European markets, “further contagion poses a serious risk,” Fitch said, without explaining what it meant by contagion. The “exposures” of U.S. lenders to major European banks and the stressed nations of Greece, Ireland, Italy, Portugal and Spain, known as the GIIPS, are smaller than those to some of the continent's larger countries, Fitch said. The six biggest U.S. banks -- JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley -- had $50 billion in risk tied to the GIIPS on Sept. 30, Fitch said. So-called cross-border outstandings to France for all except Wells Fargo were $188 billion, including $114 billion to French banks. Risk to Britain and its banks was $225 billion and $51 billion, respectively. Europe's debt crisis has toppled four elected governments, with the last two, in Greece and Italy, falling last week. Italian bond yields remained at about 7 percent -- the threshold that led Greece, Portugal and Ireland to seek bailouts -- and shares of French banks, including BNP Paribas SA and Societe Generale SA, dropped amid concern they'll need more capital.
• The Yen's basis swap spread vs the dollar widened to the most since at least June 1997, signaling that Japanese banks are facing tightening dollar funding. The 2-year cross-currency basis swap, the rate which banks pay to convert yen payments into dollars, was at 76 bps below the Libor for yen, according to Bloomberg.
• Singapore's Exports Slide the Most in 30 Months as Electronics Sales Slump. Singapore’s exports fell the most in more than two years in October as a slowing global economy curbed demand for electronics products. Non-oil domestic exports fell 16.2 percent from a year earlier, after a revised 4.6 percent decline in September, the island’s trade promotion agency said in a statement today. The median of 12 estimates in a Bloomberg News survey was for a 7.8 percent drop. Singapore’s expansion will stall over the next few quarters as the global economy worsens, before a “modest recovery” in the second half of 2012, the central bank said last month. “The fact that the drop in electronics occurs ahead of the festive season has further highlighted the weakness in global demand,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “The risk of gross domestic product shrinking in the fourth quarter cannot be discounted.” Electronics shipments by companies such as contract manufacturer Venture Corp. dropped 31.2 percent in October from a year earlier, after declining 13.6 percent the previous month.
• Zoomlion Sees 'Drastically' Slower Demand for Cranes, Excavators in China. Zoomlion Heavy Industry Science & Technology Co. said a slowdown in China’s demand for cranes and excavators will carry on next year because of waning economic growth and cutbacks in railway building. “Demand for construction machinery has shrunk drastically and growth will no doubt continue to slow next year,” Chairman and Chief Executive Officer Zhan Chunxin said in a Nov. 15 interview in Hong Kong. Meeting a 50 billion yuan ($7.9 billion) sales target for this year will also be “challenging,” he said. China’s second-biggest maker of construction equipment fell in Hong Kong trading as the forecast added to signs of cooling in the nation’s economy and in spending on new factories and houses. “There’s no doubt China’s infrastructure investment will slow in 2012,” said Banny Lam, Hong Kong-based economist at CCB International Securities Ltd., a unit of China’s second-largest lender. “The overall economy will also cool because of weaker export demand.” Zoomlion declined as much as 6.3 percent to HK$8.60, the lowest intraday level since Oct. 6, in Hong Kong trading. It was down 5.7 percent at HK$8.66 as of 11:33 a.m. That’s 42 percent below the price it sold shares at in December 2010.
• Moore Capital Said to Overhaul Coffey's Fund as Returns Trail Averages. Moore Capital Management LLC restructured its main emerging-markets hedge fund in a move that may improve the below-average returns posted by Greg Coffey since he took over as manager three years ago.
• Mosaic(MOS), the largest U.S. potash producer, said additional supplies from so-called brownfield expansion projects will make prices unsustainable above $600 a ton through 2020.
• Finance Job Losses Near 200,000 as BNP, Citigroup Cut Staff. Job losses in the global financial services industry this year are close to surpassing 200,000 as Citigroup Inc., France's BNP Paribas SA and Bank of America Corp. eliminate jobs to reduce costs. Citigroup, the U.S. bank that shook up senior management earlier this month, may cut as many as 3,000 jobs as Chief Executive Officer Vikram Pandit squeezes out costs, said a person familiar with the company's plans. BNP Paribas, France's biggest bank, said today it will trim about 1,400 jobs at its investment-banking unit, with most coming from the lender's capital markets and structured-finance teams. Bank of America also cut part of its equities unit in Europe yesterday. The reductions add to the 195,000 banks, insurers and asset managers announced this year, and surpass the 174,000 losses in 2009, data compiled by Bloomberg show.
• Stifel Is Said to Be in Exclusive Talks to Buy Morgan Keegan. Stifel Financial Corp. is in exclusive talks to buy Regions Financial Corp.’s Morgan Keegan brokerage after prevailing over private-equity bidders, said people with knowledge of the matter.
• India Stocks May See 'Sharp' Fall, Franklin Templeton Says. Indian stocks, the second-worst performers among Asia’s biggest markets this year, may decline further as investors shun riskier assets amid the global economic turmoil, according to Franklin Templeton Investments.

Wall Street Journal:

• Rep. Issa Promises 'Significant' Findings in Countrywide Probe.
• Banks Face Funding Stress. European Institutions Resort to Potentially Risky Swaps to Generate Liquidity. European banks, increasingly concerned about their ability to access funding, are devising complex and potentially risky new deals that enable them to continue borrowing from the European Central Bank. The banks' maneuvers, which include behind-the-scenes swapping of assets among financial institutions, could heighten risk across Europe's already fragile financial system, say some senior industry officials and regulators. They also are a sign that struggling banks across Europe are preparing for a period of prolonged reliance on financial lifelines from the ECB. The Continent's intensifying financial crisis has made it difficult for many banks to obtain funding from customary market sources. Some banks are exhausting their supplies of assets—such as European government bonds and certain types of asset-backed securities—that the ECB accepts as collateral and that the banks haven't already committed to other uses, according to bankers and analysts. Others are scrambling to stockpile such assets to comfort analysts and investors worried about the banks' abilities to weather a long-term freeze in bank-funding markets. Some regulators and bankers are worried. By transferring potentially risky assets among a wide range of institutions, the so-called liquidity swaps have the potential to "create a transmission mechanism by which systemic risk across the financial system may be exacerbated," the U.K.'s Financial Services Authority warned in a July consultation paper. The scramble for ECB-eligible collateral highlights the tenuous state of Europe's banking industry. Traditional sources of bank funding, including institutional investors and fellow banks, have largely fled amid concerns that many lenders are sitting on huge piles of risky government bonds and loans to shaky borrowers. That has left a funding vacuum that a growing group of banks are filling with loans from the ECB. In the increasingly popular liquidity swap, banks transfer illiquid assets such as non-investment-grade loans to corporations or to finance public-infrastructure projects—and which aren't eligible to serve as collateral for ECB loans—to investment banks or insurance companies. In return, the investment banks or insurers provide government bonds or other liquid assets that the original bank can use as collateral to secure loans from the ECB. The investment banks apply a discount to the assets they are receiving—shielding them from some potential losses—and receive commissions on the trades. A number of French, Italian and other European banks, including bailed-out Franco-Belgian lender Dexia SA, recently have entered into such transactions, according to people familiar with the matter. "It's a way to improve your liquidity and to get liquid some assets that are not liquid," said a senior Dexia executive, who says he has crafted billions of euros of such trades in recent months. The ECB's extensive loans to banks have put its own balance sheet at risk, many analysts say. Partly to protect banks in the periphery, ECB officials suspended rules that had confined the central bank to only accepting investment-grade government bonds. As a result, the ECB now holds junk-rated Greek, Irish and Portuguese bonds.
• Euro-Dollar Basis Swap Cost t 2008 Crisis Levels. Elevated concerns about the fate of the euro zone sent a widely tracked measure of European funding costs to levels not seen since the 2008 financial crisis. The three-month euro-dollar cross currency basis swap traded as wide as minus 126 basis points on Wednesday, its peak since December 2008. This shows it is exceedingly more expensive to swap euros into scarce dollars for European financial institutions. Its elevated costs reflect investor concern that the European Central Bank is not buying enough bonds to bring down yields to stabilize European debt markets. Italian bond yields are hovering in the 7% range, a euro-era high. Yields on French bonds have also risen by 50 basis points in the last week. “People are looking at (the swap) and talking about it,” said Todd McDonald, head of foreign exchange trading at Standard Chartered in New York. “Conviction and volumes are both low. People are trying to avoid trading it.” However, some have no choice but to use the swap market or lean on the ECB for funds. Many avoid taking the latter route because it might damage the reputation of the borrower. The swap has widened despite the European Central Bank’s efforts to ease the situation by establishing a window for banks and others to exchange the common currency for greenbacks.
• U.S. Levels Subpoenas in Probe of MF Global. Federal prosecutors in Chicago and New York have issued subpoenas in the probe of the collapse of MF Global Holdings Ltd., people familiar with the case said, a sign of an intensifying Justice Department criminal investigation as authorities try to track down about $600 million in client funds. Chicago U.S. Attorney Patrick Fitzgerald and New York U.S. Attorney Preet Bharara, regarded as two of most aggressive and high-profile federal prosecutors in the country, are using subpoenas to gather company records, the people familiar with the matter said.
• Congress to Investigate Electronic Spy Threats. Congress is launching an investigation into whether Huawei Technologies Co. and other Chinese telecommunications firms pose a potential national-security threat as they expand in the U.S. The probe by the House intelligence committee marks an intensification of U.S. scrutiny of the potential threat, in particular from Chinese firms like Huawei and ZTE Corp. Intelligence officials have shared with lawmakers concerns that such expansion could give China a foothold for electronic spying in the U.S., according to a congressional aide.
• China, Russia Resist Sanctions Against Iran. A new U.S. and European-led push to censure Iran before the United Nations nuclear agency for alleged efforts to develop atomic weapons is facing resistance from Russia, China and a bloc of developing countries, which threaten to dilute any international punishment. American and European officials on Wednesday said they believed they would reach an agreement with Beijing and Moscow on a resolution condemning Tehran's nuclear work, which will be presented to the International Atomic Energy Agency's 35-nation board of governors in Vienna on Thursday.

MarketWatch:

• Some Commodities to Take Hit from China: Analysts. Demand for industrial commodities is headed for a softening because China won't be able to offset dwindling consumption in the euro-zone economies, Capital Economics analysts said in a note distributed to reporters Thursday. Views that China's rising demand will support the global commodities is misguided, the analysts said. China's annual growth rate is set to slow to about 6% on average during the next decade as the supply of cheap labor dries up, cooling from current annual growth of about 10%. Crude oil in particular may see a potential drop as falling demand in Europe outpaces rising consumption in China.

Business Insider:

• A Look At People's REAL Holiday Shopping Plan. (graph) Based on their historical data, Gallup explains that "The 7% increase in Americans' 2011 November Christmas spending forecast compared with last year's -- from $714 to $764 -- points to a modest increase in 2011 holiday retail sales, perhaps on the order of 3% to 4%."
• Congress Insider Trading: Here's How Senator John Kerry Made Bank On Obamacare.
• The Guy Arrested For Firing A Shot At The White House May Have Spent Time At 'Occupy' Protests.
• Blue Dog Dems Break With Obama, Back Balanced Budget Amendment.
  

Zero Hedge:

• Citi Chief Economist Willem Buiter: A Spanish or Italian Default Could Happen Soon. (video)
• It's Official: Total US Debt Passes $15 Trillion. Total US debt has increased by 41.5%, or $4.4 trillion, from $10,626,877,048,913 on January 20, to $15,033,607,255,920, under Obama as president.

CNBC:

• France and Germany Clash Over ECB Crisis Role. France and Germany, Europe's two central powers, have stepped up their war of words over whether the European Central Bank should intervene more forcefully to halt the euro zone's debt crisis after modest bond purchases failed to calm markets.
  
• Apple(AAPL) Launches Audit of Chinese Suppliers. Apple has hired an outside specialist firm to help audit the environmental practices of its suppliers in China following a series of critical reports by activists.

CNN:

• Gas Mileage Boost Means Pricier Cars - EPA. New federal gas mileage rules proposed Wednesday will add thousands of dollars to the cost of new cars.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 23% 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 -19 (see trends).

Reuters:

• BHP Billiton(BHP) Turns More Cautious On Outlook. BHP Billiton, the world's biggest miner, has turned more wary on the outlook for commodity markets, warning on Thursday that customers are starting to face tighter access to trade finance and some are cutting production. BHP and rivals such as Rio Tinto and Anglo American, have warned that markets are likely to remain volatile in the near term, but BHP is the first to highlight that customers are starting to face tougher credit conditions. "The heightened volatility and uncertain economic outlook are expected to continue to weigh on sentiment in the markets for our commodities," Chief Executive Marius Kloppers told shareholders at the group's annual meeting in Australia.
• Applied Materials(AMAT) Warns of "Challenging Economy". Chip gear maker Applied Materials Inc gave a cautious quarterly revenue outlook and warned it expects to be affected by a tough economy. Economic uncertainty in the United States and Europe has hurt demand for consumer electronics in recent months, leading many chip manufacturers to put expansion plans on hold.
• Greek Protesters to March as Warning to New PM. Thousands will protest in Athens on Thursday to warn Lucas Papademos' new government that despite parliament's backing for more austerity steps, many ordinary Greeks are not ready to endure further years of painful belt-tightening. The size and mood of the rally, the first big protest in almost a month, will signal just how bitterly a restive public will fight further tax rises and spending cuts that international lenders demand in return for a massive bailout.
• Limited Brands(LTD) Profit Beats View, Raises Outlook. Limited Brands Inc , parent of lingerie chain Victoria's Secret, reported a higher-than- expected quarterly profit, as tight expense control boosted operating margins and raised its profit outlook for the year. However, the company, which also operates the Bath & Body Works and La Senza chains, forecast a profit for the key holiday quarter mostly below analysts' expectations. The company's shares edged down to $42.70 after closing at $42.97.
• Oil Sands Opponents "Treacherous" - Canada. In a sign of the strain the Canadian government is feeling over development of the tar sands, Environment Minister Peter Kent said on Wednesday that opposition legislators who campaigned in Washington against the idea were treacherous.
• NetApp(NTAP) Sees Q3 Profit Below Street, Shares Fall. Data storage equipment maker NetApp Inc reported a 6 percent dip in fiscal second-quarter profit and forecast lower than expected results for the current quarter as large corporations trim technology spending in a shaky economy.

Financial Times:

• Call For Triple A 'Power Core' In Eurzone. The eurozone’s six triple A rated countries should have greater say in economic affairs within the single currency and act as its inner “core”, Finland’s Europe minister will on Thursday argue, the latest sign that a small subset of countries are attempting to band together to set new rules for the euro. Alex Stubb said in an interview he did not believe new institutions should be created to give the triple A countries more power. But he said European Union rules that allowed “enhanced co-operation” between member states might be needed so they could co-ordinate economic policies.
• IASB Considers Amending 'Fair Value' Accounting Rules. The Intl. Accounting Standards Board is considering limiting the extent to which insurers will be compelled to recognize "fair value" losses and profits arising from the fluctuating prices of financial assets they hold. Under pressure from the European Commission, the IASB is studying whether insurers could keep these movements out of their income statements under new accounting rules, which would make their profits less volatile.
  

Telegraph:

• Political Fires Are Alight Across Europe As Currency Debt Burns Again. The widening spreads of eurozone bond yields over Berlin's anchor rate are consistent with a currency system breaking apart. The badly bolted together superstructure, creaking heavily for the past two years, is beginning to buckle and pull apart. There has, until now, been an assumption in the capital markets that while this was a financial crisis involving sovereign debt and affected banks, the politics underpinning the system would resolve the problems. The eurozone may have been politically dysfunctional but its democratically elected leaders would arrive at the right answer and take the right action, eventually. But that's not happened. The scale of the political failure in the eurozone has become one of the biggest shocks for the market to come to terms with in recent months, a failure that's accelerating. Political argy-bargy is one thing, but the eurozone crisis now risks creating a democratic deficit, alongside the area's trade and budget deficits.
• Latin Showdown With Germany Over ECB. Germany is facing a moment of strategic truth. The sacred union with France that has held together through thick and thin for half a century is in growing danger as contagion spreads North, engulfing the French bond market.
• Don't Blame the ECB for Europe's Failures. Sir Mervyn King had good reason to leap to the defence of his friends in Frankfurt. It’s not up to the central bank, he said, to act as the mechanism for making transfer payments between surplus and deficit nations; that is essentially a political decision and therefore one that only governments can take. Printing money to buy up distress debt (debt “monetisation”) cannot be a part of any central bank’s armoury.

China Daily:

• Chinese Buyers and Developers Face Some Harsh Home Truths. Confidence shaken amid falling property prices as real estate agents suffer sudden slowdown in top-tier cities, Hu Yuanyuan reports in Beijing.

21st Century Business Herald:

• The China Banking Regulatory Commission has barred banks from selling wealth-management products with maturities of one month or less, citing people close to the regulator. Banks rely heavily on sales of short-term wealth-management products to increase deposits, causing volatility and liquidity risk.

China Securities Journal:

• Some Chinese Listed Firms Drop Property Business. Jiangsu Hengshun, Western Mining and Kingfa Sci. & Tech. are among companies planning to pull out of the housing business because of weak markets. Advances from customers at Jiangsu Hengshun slumped more than 50% y/y in the first three quarters. 477 Beijing-based companies lost qualification as developers amid weak sales, tight cashflow, high inventory and government curbs.

Beijing Business Today:

• Average home prices for China's tier 1 cities may fall between 20% to 30%, citing a research report by Ba Shusong, a researcher at the State Council's Development Research Center. Tier 2 cities' home prices may fall 10% to 20%, Ba says. China's property industry may face its first "meaningful" big adjustment "soon", Ba said.

Evening Recommendations
Jefferies:

• Rated (VZ) Buy, target $45.
• Rated (S) Underperform, target $2.50.
• Rated (CTL) Buy, target $45.
• Rated (FTR) Buy, target $7.

Night Trading

• Asian equity indices are -.75% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 209.0 +.5 basis point.
  
• Asia Pacific Sovereign CDS Index 157.50 +2.5 basis points.
• FTSE-100 futures -.73%.
  
• S&P 500 futures +40%.
  
• NASDAQ 100 futures +.46%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DLTR)/.83
• (PERY)/.61
• (WSM)/.38
• (PLCE)/1.27
• (SHLD)/-2.13
• (ROST)/1.26
• (GME)/.39
• (GPS)/.37
• (INTU)/-.12
• (CRM)/.31
• (FL)/.39
• (DLB)/.68
• (SJM)/1.39

Economic Releases
8:30 am EST

• Housing Starts for October are estimated to fall to 610K versus 658K in September.
• Building Permits for October are estimated to rise to 603K versus 594K in September.
• Initial Jobless Claims are estimated to rise to 395K versus 390K the prior week.
• Continuing Claims are estimated to rise to 3635K versus 3615K prior.
  

10:00 am EST

• The Philadelphia Fed for November is estimated to rise to 9.0 versus 8.7 in October.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Dudley speaking, Fed's Pianalto speaking, 10-Year TIPS Auction, 3Q Mortgage Delinquencies, 3Q Mortgage Foreclosures, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, Bloomberg Economic Expectations Index for Nov., Morgan Stanley Metals/Mining Conference, RBC MLP Conference, Morgan Stanley Chemicals Conference, UBS Energy Conference, (ROK) Investor Meeting, (SANM) analyst day and the (SXCI) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.