Tuesday Watch

Evening Headlines
Bloomberg: 

• Rajoy Delay Marks Bet Renewed Turmoil Makes Bailout Terms Easier. Spanish Prime Minister Mariano Rajoy’s equivocation on seeking a European bailout amounts to a bet that another bout of market turmoil will enable him to broker better terms over German resistance. In Rajoy’s thinking, “the worse it gets, the better for Spain,” said Jose Garcia-Montalvo, a former Harvard University economist who teaches at Pompeu Fabra University in Barcelona. “That would make the Germans think more deeply about the cost of letting the southern countries sink. But it’s a very risky strategy.”
• Libor Rate Conspiracy Seen in Home-Loan Borrowers’ Suit. JPMorgan Chase & Co. (JPM), Bank of America Corp. and 10 other lenders were sued by a group of U.S. homeowners who claim the banks conspired to manipulate the benchmark Libor rate, driving up the cost of mortgage loans. Libor, or the London interbank offered rate, is based on a British Bankers’ Association-commissioned daily survey that asks lenders to estimate how much it would cost to borrow money from each other for various periods in 10 different currencies. The figures are used to set interest rates for more than $300 trillion of securities and loans worldwide. 
• Vivendi, STMicro Revamp Poised to Face French Scrutiny Over Jobs. Vivendi SA (VIV) and STMicroelectronics SA (STM), each considering a reorganization to boost their competitiveness, face a hurdle as French President Francois Hollande struggles to keep an election pledge on job creation. Industry Minister Arnaud Montebourg will today host Vivendi Chairman Jean-Rene Fourtou and STMicroelectronics’s Didier Lombard separately at Bercy, the sprawling 1980’s government complex in eastern Paris. The meetings will emphasize strategic discussions as Europe’s biggest media-to-telecommunications group and chipmaker evaluate options ranging from divestments to a break-up, people with knowledge of the matter said, asking not to be named because the gatherings are private. The meetings highlight the challenges for French companies under Hollande, who campaigned on the promise of “social justice” and whose government has opposed job cuts from drugmaker Sanofi to auto manufacturer PSA Peugeot Citroen.
• Yuan Forwards Fall as Slowing GDP Growth Damps Appreciation Bets. China’s yuan forwards declined, halting a three-day gain, before a government report that may show economic growth slowed for a seventh straight quarter. Economic fundamentals and capital flows don’t support yuan appreciation, the China Securities Journal reported in a commentary today. Opponents of President Barack Obama contend that China keeps its currency undervalued to boost exports, putting counterparts in the U.S. at a disadvantage.
• Soros Says China Growth Slowing on Consumption Share Drop. Billionaire investor George Soros said China’s growth is slowing because household spending as a percentage of the world’s second largest economy is waning. “The growth model which has worked is running out of steam because consumption as a percentage of GDP has fallen” to one- third of output from half, Soros said at a National Association for Business Economics conference in New York today. Central bankers “will have to modify the growth model and somehow allow the household sector to have a bigger share of the total.”

Wall Street Journal: 

• Clinton Accepts Blame for Benghazi. U.S. Secretary of State Hillary Clinton said she takes responsibility for security at the American diplomatic outpost in Benghazi, Libya, where Ambassador Chris Stevens and three other Americans died in an attack last month. "I take responsibility," Mrs. Clinton said in a recent interview in her office. "I'm the Secretary of State with 60,000-plus employees around the world. This is like a big family…It's painful, absolutely painful." On Monday, in Lima, Peru, she also told television interviewers that she accepts the blame, adding that security at America's diplomatic missions overseas is her job, not that of the White House. Her comments come as Republicans, including presidential candidate Mitt Romney, criticize the Obama administration for its handling of the security before the attack by extremists and its explanations afterward.   
• Romney, Obama Hone Their Debate Messages. President Barack Obama and his Republican rival, Mitt Romney, enter their debate Tuesday night with different goals than the last time they met: Mr. Romney will try to build on growing strength among centrist voters that arose from his performance in the first debate, while Mr. Obama will aim to portray Mr. Romney as more conservative than his opponent has recently suggested. Mr. Obama, who was preparing here Monday, has said he knows he has to do better in the second debate.  
• Home Loans May Get Shield. Proposal Would Give Banks Protection in Cases Involving Top-Quality Mortgages. Federal regulators are considering giving mortgage lenders protection from certain lawsuits, according to people familiar with the matter, a move designed to encourage lending to well-qualified borrowers. The potential move, which would be a partial victory for mortgage lenders, is part of a broader effort to write new rules for the U.S. housing market in the wake of the mortgage meltdown. The proposal for the first time would establish a basic national standard for loans, known as a "qualified mortgage."  
• In Reversal, Cash Leaks Out of China. China, once a catch basin for the world's money, is now watching cash stream out. Wealthy Chinese citizens are buying beachfront condos in Cyprus, paying big U.S. tuition bills for their children and stocking up on luxury goods in Singapore, frequently moving cash secretly through a flourishing network of money-transfer agents. Chinese companies, for their part, are making big-ticket foreign acquisitions, buying up natural resources and letting foreign profits accumulate overseas.
• Once a Darling, Australian Dollar Loses Favor. China's economic slowdown is creating a new hierarchy in the currency market. The Australian dollar, once sought after because of the country's big iron-ore and coal exports to China, is falling out of favor with some investors. Instead, they are turning to the Canadian and New Zealand dollars, two currencies they say still stand to benefit from steady demand for their commodity exports even as China slows.
• The Solyndra Memorial Tax Break. How Energy passed out tax-loss credits that mean taxpayers will pay twice for failure. Perhaps you thought the Solyndra scandal amounted to a $535 million government loan that will never be repaid. No such luck. In the latest twist, Solyndra's investors could be rewarded for their failure, thanks to a tax benefit the Administration handed out in a bid to evade political accountability.

Zero Hedge: 

• NYSE Short Interest Drops To 5 Month Low. (graph) 
• US Households Are Not "Deleveraging" - They Are Simply Defaulting In Bulk. (graph)
• A Reminder Of Why A Fiscal-Cliff Compromise Is Not Coming Any Time Soon. (graph)
• On Nationalism And Extremism In A Nobel-Peace-Prize-Winning Europe. (graphs)
• US CEOs Opine On America's Debt And The Fiscal Cliff.

Business Insider:

• MAULDIN: We're Headed For An Economic Black Hole.
• The European Union Has Agreed To Reconquer Northern Mali From Islamic Rebels.

USA Today: 

• Likely Swing State Voters: Romney 50%, Obama 46%. Women push Romney into lead.
  Mitt Romney leads President Obama by four percentage points among likely voters in the nation's top battlegrounds, a USA TODAY/Gallup Poll finds, and he has growing enthusiasm among women to thank.

Reuters: 

• TEXT-S&P Takes Various Rtg Action On Spanish Banks On Sov Downgrade.
• Microchip Technology(MCHP) warns on revenue. Chipmaker Microchip Technology Inc said second-quarter revenue was likely below its earlier estimates due to soft demand in the chipmaking industry. "The overall global economic outlook continues to be poor and is adversely impacting our business as well as the rest of the semiconductor industry," Chief Executive Steve Sanghi said in a statement. The company estimates second-quarter adjusted revenue of $407 million to $408 million, down from its earlier forecast of between $412 million and $430 million. 
• Bankrate(RATE) issues profit warning, shares slide. Bankrate Inc (RATE.N), which operates personal finance websites, warned its quarterly earnings would fall well short of Wall Street expectations due to declining insurance referrals, sending its shares tumbling 25 percent.

Financial Times:   

• Fears over US mortgages dominance. Dominance of the mortgage market by a few big banks is undermining monetary policy, said a senior policy maker at the US Federal Reserve, in comments that may herald greater scrutiny of lenders such as Wells Fargo and JPMorgan Chase.

Telegraph:

• French business erupts in fury against "disastrous" Hollande. France is sliding into a grave economic crisis and risks a full-blown “hurricane” as investors flee rocketing tax rates, the country’s business federation has warned. “The situation is very serious. Some business leaders are in a state of quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF. “The pace of bankruptcies has accelerated over the summer. We are seeing a general loss of confidence by investors. Large foreign investors are shunning France altogether. It’s becoming really dramatic.” MEDEF, France’s equivalent of the CBI, said the threat has risen from “a storm warning to a hurricane warning”, adding that the Socialist government of François Hollande has yet to understand the “extreme gravity” of the crisis. The immediate bone of contention is Article 6 of the new tax law, which raises the top rate of capital gains tax from 34.5pc to 62.2pc. This compares with 21pc in Spain, 26.4pc in Germany and 28pc in Britain. “Let’s be clear, Article 6 is not acceptable, even if modified. We will not be complicit in a disastrous economic mistake,” Mrs Parisot told Le Figaro.

NHK:

• Seven Chinese navy vessels were seen near Yonaguni Island in the western edge of Japan's Okinawa prefecture, citing Japan's Defense Ministry. The ships were about 200 kilometers south from the disputed islands in the East China Sea and were heading north.

China Securities Journal: 

• State Economist Says No China RRR Cut Needed. Fan Jianping, chief economist at the State Information Center, says it's not necessary nor possible for China to cut interest rates or the reserve requirement for commercial banks. Fan cites pace of M2 and M1 money supply growth as reasons for why rate and reserve ratio cuts not needed. Rushed monetary loosening may lead to inflation in the future, he said. Current economic policy is focusing on stabilizing growth and controlling property prices and adjusting economic structure, Fan is cited as saying.
• China 4Q economic growth may see a "technical" rebound because last year's 4Q growth was relatively lower and there may be a restocking of inventory, according to a front-page commentary by Cao Shuishui, a researcher for the newspaper.

Evening Recommendations 
Barclays:

• Rated (AUY) Overweight, target $25.
• Rated (NEM) Overweight, target $73.
• Rated (GG) Overweight, target $62.

Night Trading

• Asian equity indices are +.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 125.0 -3.0 basis points.
• Asia Pacific Sovereign CDS Index 104.5 -2.0 basis points.
• FTSE-100 futures +.42%.
• S&P 500 futures +.15%.
• NASDAQ 100 futures +.16%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.73
• (UNH)/1.46
• (MAT)/.99
• (PNC)/1.66
• (OMC)/.72
• (STT)/.96
• (GS)/2.28
• (DPZ)/.41
• (KO)/.51
• (JNJ)/1.22
• (FRX)/.04
• (CREE)/.26
• (INTC)/.50
• (CSX)/.43
• (APOL)/.49
• (ISRG)/3.49
• (IBM)/3.61
• (LLTC)/.45
• (URI)/1.13 

Economic Releases
8:30 am EST

• The Consumer Price Index for September is estimated to rise +.5% versus a +.6% gain in August.
• The CPI Ex Food & Energy for September is estimated to rise +.2% versus a +.1% gain in August.

9:00 am EST

• Net Long-Term TIC Flows for August are estimated to fall to $48.0B versus $67.0B in July.

9:15 am EST

• Industrial Production for September is estimated to rise +.2% versus a -1.2% decline in August.
• Capacity Utilization for September is estimated to rise to 78.3% versus 78.2% in August.
• Manufacturing Production for September is estimated to rise +.3% versus a -.7% decline in August.

10:00 am EST

•  The NAHB Housing Market Index for October is estimated to rise to 41.0 versus 40.0 in September.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Raskin speaking, Spain 10Y Bond Auction, Eurozone Inflation/Trade data, German ZEW Economic Sentiment, UK inflation data and the weekly retail sales could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and consumer staple shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.