Evening Headlines
Bloomberg:
- Italian Vote Will Test Berlusconi's Majority as Allies Defect. Italian Prime Minister Silvio Berlusconi must show today whether he still has enough support in parliament to stay in power and implement austerity measures to trim the region’s second-biggest debt and bring down record borrowing costs. The Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report on last year’s budget plan that will reveal whether Berlusconi retains a majority in the 630-seat house. It’s the first such test since three party members defected to join the opposition and six others publicly called on the premier to quit. Should Berlusconi fail to muster 316 votes, he would probably face a confidence vote that will decide his fate. The yield on Italy’s 10-year bond reached a euro-era record 6.68 percent yesterday before sliding back to 6.63 percent after reports that Berlusconi was poised to resign. Berlusconi denied he would step down and pledged to call a confidence vote himself next week to secure passage of an austerity package that aims to boost growth in the region’s third-largest economy and lower the 1.9 trillion-euro ($2.6 trillion) debt. “It’s fairly clear that the market would like him to step down,” Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London, said in an interview. “When the news broke, bunds dropped immediately and Italian bonds reversed. The market’s bias is fairly clear. The question is; what comes afterward, assuming he falls?”
- European Banks Selling Sovereign Bonds May Worsen Debt Crisis. BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis. BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year. Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses. The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values. The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy while generating larger writedowns and capital shortfalls. “European regulators and leaders are shooting themselves in the foot because a big investor group for sovereign bonds has been taken out of the market,” said Otto Dichtl, a London-based credit analyst for financial companies at Knight Capital Europe Ltd. “The downward spiral will continue until policy makers find a back-up solution for the sovereigns.”
- EU Eyes December Start for Rescue Fund. European finance ministers pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the front lines until then in the fight against the debt crisis. Greece was ordered to provide written acceptance of bailout terms in order to win an 8 billion-euro ($11 billion) loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality. “It’s a two-way street; we do our part, Greece is expected to do its part,” European Union Economic and Monetary Commissioner Olli Rehn told reporters late yesterday after finance ministers met in Brussels. “It is essential that the entire political class now restores the confidence that had been lost.”
- Spain Candidates Clash on Banks; Socialists Urge Less Austerity. Spain’s candidates for the Nov. 20 election clashed over their plans for banks, pensions and the unemployed as Socialist candidate Alfredo Perez Rubalcaba said Spain should slow the pace of its budget cuts. Rubalcaba spent most of the debate interrogating opposition leader Mariano Rajoy -- the favorite to win the election. The Socialist said Spain should delay meeting the European Union’s deficit ceiling of 3 percent of gross domestic product by two years to 2015, and called on the European Central Bank to keep cutting interest rates. He accused Rajoy of planning cuts to unemployment benefits to bring the deficit in line, as well as reducing pensions and using public money to bail out banks.
- Hong Kong's Donald Tsang Sees '50-50 Chance' of World Recession. There's a "50-50 chance" of a global recession in the coming year, especially in the next two quarters, Hong Kong Chief Executive Donald Tsang said at an event in New York today. Tsang said the city's inflation isn't caused by the local currency's link to the U.S. dollar, and is instead a "global phenomenon."
- Hong Kong May Enter Recession, Most Accurate Forecaster Says. Hong Kong's economy, a barometer of global growth, probably sunk into a recession in the third quarter after a second consecutive quarterly contraction, said Daiwa Capital Markets Ltd. The economy likely shrunk 1.5% in the three months ended September from the previous three months, Kevin Lai, an economist at Daiwa, wrote in a report.
- Cargoes to U.S. Drop for First Time Since '09 as Confidence Wanes: Freight. U.S. imports on the world’s biggest trading route are dropping for the first time in almost two years as consumer confidence weakens to the lowest level since the recession that ended in 2009. Container volumes on the Asia-to-U.S. route fell 3.8 percent in the third quarter, the first decline since the last three months of 2009, according to Newark, New Jersey-based PIERS, a unit of UBM Global Trade that compiles cargo data. The slump probably continued last month, said Mario Moreno, a UBM economist. Rates for 40-foot containers to the West Coast, a benchmark, tumbled 24 percent this year, according to data from Clarkson Plc, the world’s biggest shipbroker. “This is another piece of data that suggests growth will remain slow for the foreseeable future,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Consumers are still getting used to the idea that they are not going to make as much money or accumulate as much wealth as they thought they would a few years ago.” Slumping rates for container lines from A.P. Moeller-Maersk A/S, the largest, to Neptune Orient Lines Ltd. are as much about capacity as trade. The fleet has expanded for two years to a record, according to Redhill, England-based IHS Fairplay. While cargoes to the U.S. West Coast from Asia are shrinking, volumes will probably expand 1.5 percent from 2010, signaling no return to the last recession, when they dropped 15 percent, London- based Clarkson estimates.
- Banning Sugary Soda From Schools Fails to Cut Teen Consumption. Banning sugar-filled sodas from American schools as an effort to combat childhood obesity doesn’t reduce overall consumption levels of sweetened beverages, research found. In U.S. states that banned only soda, about 30 percent of middle-school students still purchased sugary drinks like sports and fruit beverages at school, similar to states that had no policy, according to a study released online today in the Archives of Pediatrics and Adolescent Medicine. In states that banned all sugar-sweetened beverages, students still consumed the drinks outside of school, the researchers said.
- Citi(C), JPMorgan(JPM) May Face Highest Basel Surcharges, Draft Says. Citigroup Inc. (C), JPMorgan Chase & Co., BNP Paribas SA, Royal Bank of Scotland Group Plc, and HSBC Holdings Plc (HSBA) may face top capital surcharges of 2.5 percentage points, according to a provisional list prepared by global regulators and obtained by Bloomberg News.
- Most Solar Makers Will Disappear: Trina(TSL) CEO. Most of the biggest solar equipment makers may disappear in the next few years as plunging prices erode margins and drive the weakest out of business, according to Trina Solar Ltd. (TSL), the fifth-largest supplier of solar panels.“This is the decade of mergers and acquisitions,” Jifan Gao, chief executive officer of Changzhou, China-based Trina, said in an interview. “From now until 2015 is the first phase, when about two-thirds of the players will be shaken out.”
- Keystone Rerouting Said to Be Weighed by U.S. State Department. The U.S. State Department is weighing whether to seek a rerouting of TransCanada Corp.’s planned $7 billion Keystone XL pipeline away from the Sandhills region of Nebraska, a department official said. The department is considering how to respond to concern among Nebraska citizens and public officials about the risk that TransCanada’s current plans may pose to the Sandhills, said the official familiar with the deliberations, who spoke on condition of anonymity yesterday about internal discussions.
- Derivatives Tide Rises at Big Banks. Huge numbers can be scary, especially when it comes to derivatives. So investors should take a seat before reading third-quarter securities filings from some of the biggest U.S. banks. During the period, gross derivatives assets jumped 52% at Bank of America from the previous quarter, to $2.17 trillion. At J.P. Morgan Chase, they rose 47%, to $2.04 trillion. And at Citigroup, they increased 31%, to about $1.1 trillion. Although big, those moves aren't immediately apparent to investors. Under U.S. accounting rules, banks are able to "net" down the gross asset to reflect offsetting derivative liabilities and collateral. At J.P. Morgan, this net figure, which is what goes into the calculation of total assets shown on the face of the balance sheet, was $109 billion. It was about $79 billion at BofA and $60.3 billion at Citi. It isn't until banks release quarterly securities filings, usually a few weeks after they post earnings, that investors see the footnote disclosures detailing the gross positions.
- Repsol Taps Big Argentine Oil Find. Repsol YPF SA's discovery of a huge amount of shale oil in the south of Argentina could boost its energy reserves by 44% and mark a massive potential windfall for the country and the oil company. The Spanish company's Argentine unit said Monday it has identified 927 million barrels of oil equivalent in underground rock while exploring 428 square kilometers in the Loma La Lata area.
- Dynegy Files for Unusual Bankruptcy. Dynegy Inc.'s holding company filed for Chapter 11 bankruptcy protection in a way that could cause losses for bondholders without harming parent-company shareholders that include Carl Icahn and hedge fund Seneca Capital.
- China's Exporters See Slowing Growth. China’s export growth continued to slow on a drop in demand from developed countries, according to data from the 110th China Import and Export Fair. With total exports hitting $37.9 billion, up 8.9% year-on-year, trade figures from the fair showed a marked decrease in expansion from the 14.5% rate of growth clocked just one year ago. Judging from export destinations, demand in European and American markets accounted for the largest decreases, down 19% and 24%, respectively.
Zero Hedge:
- Complete Hedge Fund October Score Card.
- Presenting The Latest Eurodebt Exposure Masking Scam Courtesy Of Morgan Stanley(MS): Level 1 To Level 2 Transfers.
- Cash-Rich Firms Sit Tight, Fearing Government Meddling. Fears of government intervention and regulatory changes are causing companies in Asia and Europe to refrain from increasing spending despite improved balance sheets since the global financial crisis, a survey by money manager Fidelity Worldwide Investment showed.
- Greece Runs Into Trouble Picking a New Prime Minister. Greek party leaders are struggling to agree on a new prime minister, despite EU demands that the political class commit itself fast to the nation's financial salvation and end the chaos threatening the entire euro project.
CNN:
- Insider Selling on the Rise. (graph)
- Big Bank SEC Settlements: Toothless Face-Savers? If big banks get to settle with the SEC without admitting or denying any wrongdoing, what good does a settlement do in the end?
- Is Obama's Rail Initiative a 'Train to Nowhere'? High-speed train plan draws little enthusiasm as California costs soar.
- Exclusive: Fed's Fisher Says Still Against New Easing. Dallas Federal Reserve Bank President Richard Fisher on Monday said his support for the Fed's decision last week to continue efforts to push down borrowing costs does not mean he is a convert to the need for more easing. Fisher voted with the 9-1 majority on the Fed's policy-setting panel last Wednesday to hold a steady course on the central bank's super-easy policy. It was a departure for the Texas central banker, who opposed the Fed's easing in August and again in September. "I already dissented, and everybody knows it. I didn't support those programs and I haven't changed my mind," Fisher, 62, said in an interview with Reuters at the regional Fed bank's headquarters. "There was no new proposal, no new initiative, so therefore there was no reason to dissent," he said. "But we didn't take any new steps, and to me, that's progress," adding that if there had been a proposal to do additional easing, he would have opposed it. As if to signal just how comfortable he was with his vote last week, Fisher swung his legs over the arm of his leather chair partway through the interview and conducted the balance of it from a partially prone position. His grounds for voting against the Fed's decision in previous meetings were that what the economy needs is not lower interest rates but more clarity from lawmakers on the future of tax and regulatory policy. Fisher said, as he has repeatedly, that the Fed has done its job, keeping rates near zero for nearly three years and buying more than $2 trillion in long-term securities to send borrowing costs down still further. Fisher said he still sees the lack of clarity on U.S. fiscal policy as the biggest drag on U.S. growth. But credit problems in Europe are also hurting, and not just because a slowdown in Europe could hurt U.S. exports. "It's one more inhibitor of confidence, it's one more factor of uncertainty" that is holding back the recovery, he said. "We could make it worse by signaling we could inflate our way out of it or flood our way out of it." Fisher said he sees about 2.5 percent to 3 percent growth for the rest of this year. Though that is not fast enough to put much dent in an unemployment rate that has stayed a 9 percent or above for more than a year, it's "highly doubtful" monetary policy can do much to help, he said. "All it does is build up our balance sheet" and makes an eventual exit from easy policy more difficult, he said. Most Wall Street economists believe the snail's pace of recovery and weak U.S. jobs growth will push the Federal Reserve to undertake more measures to help the economy, according to a Reuters poll on Friday. But Fisher, who will rotate into a non-voting spot on the Fed's policy-setting panel next year, re-emphasized his opposition to a third round of quantitative easing, which would be known as QE3. "QE3 is not going to happen in my book, unless it's clear we have not provided enough liquidity," he said.
- Rackspace(RAX) Revenue Beats on Growing Web Hosting Demand. Web hosting company Rackspace Hosting Inc's third-quarter revenue came in above analysts' expectations, as the demand for hosting applications rose in a sluggish macro economy.
- Priceline(PCLN) Profit Higher as Bookings Jump. Online travel agency Priceline.com on Thursday posted a higher quarterly profit that topped analysts' expectations as strong growth at its overseas markets boosted bookings. Priceline also forecast third-quarter profit above Wall Street expectations and its shares jumped 10 percent in after-hours trading to $532.56.
- Not So Hedge Funds. Hedge funds used to promise “absolute returns” until hefty losses in the financial crisis reminded clients that there is no such thing. Since then, hedgies have preferred to talk about “uncorrelated returns”, appealing to pension fund advisers and others who use variants of the capital asset pricing model. Once again, the sales pitch is far from the truth.
- Eurozone Ministers Fail to Create €1 Trillion Bail-Out Fund. Eurozone finance ministers have failed to sanction measures to create the bloc's crucial €1 trillion bail-out fund – despite warnings that Europe is dangerously ill-equipped to cope with the financial and economic crisis enveloping Italy. Despite publishing a more detailed mandate following a summit in Brussels, the Eurogroup delayed agreeing specifics on how to leverage the €440bn European Financial Stability Facility (EFSF), risking further market turmoil ahead of votes on Tuesday that could topple Silvio Berlusconi's government. The EFSF also pushed ahead with a 10-year bond auction which it had put off from last week because of lack of demand. The fund, which is supposed to be the eurozone's key weapon against the debt crisis, managed to raise €3bn but only after having to pay record returns to entice investors. Joachim Fels of Morgan Stanley said: "The leveraged EFSF may still turn into a bazooka but so far it looks more like a water pistol."
- France Cuts Frantically as Italy Nears Debt Spiral. France has unveiled the toughest austerity measures since World War Two despite the looming danger of a double-dip recession, vowing to slash borrowing by €65bn over the next five years in a last-ditch effort to save the country's AAA rating.
- Germany's Finance Minister Wolfgang Schaeuble expects additional costs to be shouldered by Germany's Soffin rescue fund in the event Greece goes bankrupt or bondholders have to accept a "larger" writedown on Greek government bonds, citing a letter by Schaeuble to Carsten Schneider, the Social Democratic Party's budget spokesman in parliament. Additional costs potentially amounting to billions of euros could stem from higher payments to the so-called bad banks for Hypo Real Estate Holding AG and WestLB, and are not yet included in Germany's fiscal budget.
- About 1,000 Beijing property agencies have closed this year, the most in three years, because of cooling demand for homes, citing Homelink Real Estate. About 177 property agencies closed in Beijing last month.
- The Chinese government may reduce spending on railways by 38% to $79B/year through 2015, citing sources.
Piper Jaffray:
- Rated (DD) Overweight, target $62.
- Rated (CNH) Overweight, target $51.
- Asian equity indices are -.75% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 195.50 +3.25 basis points.
- Asia Pacific Sovereign CDS Index 150.25 -2.0 basis points.
- FTSE-100 futures +.38%.
- S&P 500 futures -.44%.
- NASDAQ 100 futures -.33%.
Earnings of Note
Company/Estimate
- (FOSL)/1.04
- (SMG)/-.44
- (ROK)/1.21
- (ATVI)/.02
- (IGT)/.23
- (NILE)/.17
- (MDR)/.29
- (ANDE)/.17
- (EBIX)/.38
7:30 am EST
- NFIB Small Business Optimism for October is estimated to rise to 90.0 versus a reading of 88.9 in September.
- None of note
- The Fed's Kocherlakota speaking, Fed's Plosser speaking, JOLTs Job Openings report for Sept., EU Finance Ministers Meeting, China CPI, 3-Year Treasury Note Auction, weekly retail sales reports, IBD/TIPP Economic Optimism Report for November, Baird Industrial Conference, CSFB Healthcare Conference, Piper Jaffray Tech/Media/Telecom Conference, Wells Fargo Tech/Media/Telecom Conference, (SE) Investor Meeting, (SWI) Analyst Day, (AWH) Investor Day and the (QSII) Analyst Day could also impact trading today.
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