Evening Headlines
Bloomberg:
- EU Track Record Casts Doubt on Crisis Fight as Draghi Rally Ebbs. Mario Draghi sees reason to be ``optimistic” about the euro-area financial crisis now that he's committed the European Central Bank’s balance sheet to ending it. That confidence depends on political leaders who have rarely missed an opportunity to miss an opportunity since Greece’s 2009 deficit blowout began upending the 17-nation euro zone. Their track record and the compromises required to put their promises into action leave Juergen Michels, chief euro- area economist at Citigroup Inc. (C) in London, skeptical. “There are still a huge amount of unanswered questions and the region has to find a way back to growth and reduced debt,” said Michels. “The journey is still very, very long.” Time has been bought by ECB President Draghi’s pledge to purchase government securities and the imminent birth of Europe’s 500 billion-euro ($653 billion) bailout fund, the European Stability Mechanism. To persuade global investors that the euro area can make it through its second decade intact, French socialists, German burghers, Catalan separatists, Italian technocrats and Greek tax collectors have to forge a rainbow alliance to meet the conditions demanded by markets, creditors and the ECB. Following an unproductive meeting of European finance chiefs in Cyprus last week, a market rally triggered by Draghi’s debt-buying plan has run out of steam. Spanish and Italian bonds have surrendered some of their recent gains.
- Deposit Flight From Europe Banks Eroding Common Currency. An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system. A total of 326 billion euros ($425 billion) was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31, according to data compiled by Bloomberg. The plight of Irish and Greek lenders, which were bleeding cash in 2010, spread to Spain and Portugal last year. The flight of deposits from the four countries coincides with an increase of about 300 billion euros at lenders in seven nations considered the core of the euro zone, including Germany and France, almost matching the outflow. That’s leading to a fragmentation of credit and a two-tiered banking system blocking economic recovery and blunting European Central Bank policy in the third year of a sovereign-debt crisis. “Capital flight is leading to the disintegration of the euro zone and divergence between the periphery and the core,” said Alberto Gallo, the London-based head of European credit research at Royal Bank of Scotland Group Plc. “Companies pay 1 to 2 percentage points more to borrow in the periphery. You can’t get growth to resume with such divergence.”
- Foreign Investment in China Fell in August as Economy Slowed. Foreign direct investment in China fell in August as a deepening economic slowdown hurt overseas confidence in the world’s most populous nation. Spending declined 1.4 percent from a year earlier to $8.33 billion, the Ministry of Commerce said in Beijing today, the ninth drop in 10 months. Investment in the first eight months of the year fell 3.4 percent to $75 billion, the ministry said. “Concerns about an economic slowdown and worsening profitability in certain sectors in China are all contributing to the fall in foreign investment,” Zhu Haibin, Hong Kong-based chief China economist for JPMorgan Chase & Co., said before the release. “China is still in middle of an economic slowdown.”
- Japanese Automakers Bracing for Bashing in China Protests. Two years ago, Sherry Wang bought a Toyota Camry because it offered a comfortable way to commute to her job as a researcher in the Chinese city of Xi’an. Lately, she’s been taking the bus. “I’m afraid that my car or I will become a target” of anti-Japanese protestors, who have thronged China’s streets in recent days, Wang said. “I just hope life will get back to normal as quickly as possible.”
- Leaders' Struggles in Beijing, Tokyo Escalate Island Dispute. The flare-up between China and Japan over a small group of islands has exposed vulnerabilities in the governments of both nations that make diplomatic compromises difficult despite their deep economic ties.
- Growing Restaurant Chains Flock to Malls. Darden, Buffalo Wild Wings, Chipotle Reshape Commercial Landscape, Signing Leases as Struggling Retailers Move Out. Vacant Circuit City Stores Inc. locations, Home Depot Inc. parking lots and excess space in Sears Holdings Corp. stores are finding new life as restaurants in a sign of how the sluggish economy is reshaping the commercial landscape. Darden Restaurants Inc. has been opening Olive Gardens in closed supermarkets, Circuit City stores and motels, and placing its LongHorn Steakhouses in erstwhile Blockbuster Inc. outlets and Borders Group Inc. bookstores. Buffalo Wild Wings Inc. has been taking over space in Sears stores and on the parking lots of big-box retailers with excess land.
- Union Vote Ends Strike by Teachers in Chicago. Chicago teachers union officials voted Tuesday to end a strike that halted classes for 350,000 students and illustrated the intensifying national debate over how teachers are evaluated, hired and fired.
- For Superfast Stock Traders, a Way to Jump Ahead in Line.
- China's CIC Makes Investing Shift. China Investment Corp. is taking a more active role in its investments overseas by co-investing with private-equity fund managers such as Canada's Brookfield Asset Management Inc., according to people with the direct knowledge of the fund, reflecting a shift in how one of the world's largest sovereign funds prefers to invest its money.
- Alpha Natural(ANR) to Shut Coal Mines, Shed 9.2% of Jobs.
- What Romney Might Have Said. Draft remarks for the candidate on taxes, dependency and the 47%.
MarketWatch:
- Samsung to slash semiconductor investment: report. Samsung Electronics Co. plans to cut its investment in the semiconductor business next year by half due to slowing demand and declining prices, the Kyunghyang Shinmun reported Wednesday. "The market conditions are not in good shape and the company has executed a record investment this year," a high-ranking Samsung official was quoted as saying.
CNBC:
- Bullard says would not have voted for QE3. The Federal Reserve should have waited for clearer signs of a flagging economy before launching its new bond-buying program, the head of the St. Louis regional Fed bank said on Tuesday, adding that he would have voted against it. "We should take a little bit more (of a) wait-and-see posture," James Bullard, president of the St. Louis Fed, told Reuters Insider. "I would have voted against it based on the timing. I didn't feel like we had a good enough case to make a major move at this juncture," said Bullard, who has been viewed as a centrist on the spectrum of Fed officials, though in recent months he has sounded opinions that have sounded more hawkish as he has expressed doubts about the need for further stimulus. The Fed's statement in which it unveiled QE3 last Thursday sparked some controversy by saying monetary policy would likely be kept very easy until long after the economic recovery strengthens. This was seen as a signal policymakers would tolerate higher inflation, which some economists say could help the economy by goading spending and helping to slowly reduce the country's debt load. Bullard said he was not in that camp. "I don't think there's a lot of benefit from inflation," he said.
- Goldman(GS) names Schwartz CFO as Viniar retires. Goldman Sachs Group Inc's longtime chief financial officer, David Viniar, will retire at the end of January and be replaced by Harvey Schwartz, the global co-head of securities, the investment bank said on Tuesday. Schwartz, 48, joined Goldman in 1997 from Citibank. He is among a small group of executives who are considered candidates for the chief executive position when CEO Lloyd Blankfein eventually steps down.
- US Fiscal Drag is World's Problem—Cliff or No Cliff.
- Offshore Profits Come Under Senate Scrutiny. A powerful U.S. Senate panel will on Thursday examine the tax implications of how U.S. multinational corporations shift overseas profits around the world.
- Scenes From Anti-Japan Protests in China. (pics)
Business Insider:
- A Pending IRS Ruling Puts $50 Billion Worth Of Commodity Mutual Funds At Risk.
- FedEx(FDX) CEO: I'm Amused Watching Observers 'Completely Underestimate' What The Export Slowdown Is Doing To China.
- The iPhone 5 Reviews Are The Most Positive We've Ever Seen For A Smartphone.
Zero Hedge:
- Can Saudi Arabia Really Lower US Gas Prices Ahead Of The Election?
- Your Taxes At Work: All You Need To Know About Who Pays What Taxes In The US. (graphs)
- Bernanke, The Blind Archer.
- Re-Retaliation: Fire Spotted At Gate Of Chinese School In Kobe, Japan.
- Corporate Profits Squeeze For Large Caps. (graphs)
IBD:
NY Times:
- Euro or No, Economics of Everyday Greek Life Is Eroding. When a visitor raised the issue on everyone’s minds — Greece’s future in the euro zone — Mr. Skouros pursed his lips for a long moment before speaking. “The problem has now gone beyond whether we remain in the euro or not,” said Mr. Skouros, 54. “The issue is, Can Greece be fixed?”
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows Mitt Romney attracting support from 47% of voters nationwide, while President Obama earns 45% of the vote. Four percent (4%) prefer some other candidate, and three percent (3%) are undecided.
- BOJ eases monetary policy as global slowdown bites. The Bank of Japan eased monetary policy on Wednesday by boosting asset purchases, as slowing global demand and heightening tensions with China hurt chances of a near-term recovery in the export-reliant economy. The central bank expanded its asset buying and loan programme, currently its key monetary easing tool, by 10 trillion yen ($127 billion) to 80 trillion yen, with the increase to be for purchases of government bonds and treasury discount bills. The deadline for meeting the overall target was extended by six months to December 2013. As widely expected, the central bank maintained its key policy rate in a range of zero to 0.1 percent.
- American issues layoff notices, cuts flight schedule. American Airlines said on Tuesday it has notified more than 11,000 workers they could lose their jobs as part of its bankruptcy reorganization, and said it was cutting flights by one to two percent for the rest of September and October.
- Global growth worries dent Asia business sentiment in Q3-survey. Business sentiment among Asia's top companies fell for the second straight quarter, dragged down by export-orientated economies such as China and Japan, while domestic spending helped boost Southeast Asia's outlook, a Thomson Reuters/INSEAD survey showed. Concerns over global demand are hurting Asia's export engines, with autos, technology and shipping sectors among the least upbeat in the survey. Sectors more exposed to domestic growth were much more optimistic. The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to 62 in the third quarter from 69 in the second quarter of 2012, having peaked at 80 in the first quarter of 2011. A reading above 50 indicates an overall positive outlook, while one below 50 points to pessimism.
- Oil service stocks spike in short flurry before market's close. A handful of oil services stocks spiked up in price and trading volume less than 15 minutes before the market's close on Tuesday, but Nasdaq let the trades stand after an investigation by its surveillance team, the exchange said. After the market's close, Nasdaq said it was investigating potentially erroneous transactions involving seven securities. At 5:15 p.m. the exchange said it had reviewed the transactions and had determined that all trades would stand.
- NYC commercial construction down by half in FH 2012-trade group. Commercial construction in New York City fell by nearly one-half in the first six months of 2012 to $3.2 billion from $6.1 billion a year earlier, due to the still tepid economic recovery, a trade group said on Tuesday.
Telegraph:
- Beijing hints at bond attack on Japan. A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.
- IMF bail-out plans face 'serious challenges' due to 'ineffective' EU. The International Monetary Fund says it faces “serious challenges” in drawing up bail-outs for heavily indebted eurozone countries because of ineffective European Union decision-making and the bloc’s opposition to restructuring debt.
- US Loans Initiative Could Hit Lending. BANKS COULD be deterred from lending under a new approach to bad-loan provisioning being developed in the US, according to the head of the body that sets rival international accounting rules. In another sign of how attempts to create global accounting rules have unravelled, Hans Hoogervorst, International Accounting Standards Board (IASB) chairman, criticised a more conservative attitude to bank accounting that has gained favour in the US. The former Dutch finance minister claimed the method, which involves upfront recognition of all expected lending losses, could have “unintended consequences”. The “day one” losses it would entail could encourage financial institutions to cut back on new lending in tough economic conditions to boost profits, Mr Hoogervorst said. The financial crisis was exacerbated by accounting rules that allow banks to avoid setting aside money to cover losses, which they know are likely to happen.
- QE3 to Hurt Emerging Economies, China State Economists Writes. Quantitative easing in the U.S. will "do serious damage" to the global economy and particularly emerging economies, Zhang Monan, an economic researcher at the State Information Center, wrote today.Liquidity from QE3 will flow to emerging economies seeking short-term profits, hurting the independent decision making of authorities in those countries, Zhang wrote. Commodities prices will rise, causing damage to the development of emerging economies, he said. Dollar depreciation as a result of QE3 will cause "other countries to pay for the U.S. crisis," Zhang wrote.
- China State Researcher Recommends Economic Steps Against Japan. China should implement "economic sanctions" against Japan in response to the Japanese purchase of islands claimed by both nations, Jin Baisong, deputy director of the department of Chinese trade studies at the Chinese Academy of International Trade and Economic Cooperation, wrote. China could use the "security exceptions" granted by the WTO to reduce the export of "some important materials" to Japan, Jin wrote.
- China's makers of wind energy equipment have had as much as 40% of their capacity unused this year, citing research by the China Assoc. of Resource Comprehensive Utilization. The manufacturing has been idled because of overcapacity. Price competition has also squeezed profit margins, citing Cai Fengbo, an official with the China Wind Energy Association.
RBC Capital:
- Rated (SHW) Top Pick, target $195.
- Asian equity indices are unch. to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 116.0 -.5 basis point.
- Asia Pacific Sovereign CDS Index 95.50 +1.0 basis point.
- FTSE-100 futures -.08%.
- S&P 500 futures +.34%.
- NASDAQ 100 futures +.36%.
Earnings of Note
Company/Estimate
- (GIS)/.62
- (CBRL)/1.30
- (AZO)/8.40
- (ADBE)/.59
- (BBBY)/1.02
- (SCS)/.18
8:30 am EST
- Housing Starts for August are estimated to rise to 767K versus 746K in July.
- Building Permits for August are estimated to fall by -1.9% versus a +6.8% gain in July.
10:00 am EST
- Existing Home Sales for August are estimated to rise +2.0% versus a +2.3% gain in July.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory gain of +1,000,000 barrels versus a +1,994,000 barrel gain the prior week. Distillate supplies are estimated to rise by +1,000,000 barrels versus a +1,476,000 barrel gain the prior week. Gasoline inventories are expected to rise by +1,000,000 barrels versus a -1,177,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +1.0% versus a -1.4% decline the prior week.
Upcoming Splits
- None of note
Other Potential Market Movers
- The Fed's George speaking, Fed's Fisher speaking, German 2Y auction, China HSBC Flash PMI, weekly MBA mortgage applications report, Citi Industrials Conference, UBS Life Sciences Conference, Goldman Sachs Communacopia Conference, CSFB Steel/Mining Conference, (KMT) analyst day and the (BG) investor day could also impact trading today.
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