Today's Headlines

Bloomberg: 

• Banks’ Off-Balance-Sheet Risks Come Under Basel Scrutiny. Banks are set to face a broad international leverage limit that will catch off-balance sheet risks and prevent them from hiding their debt, according to the head of the Basel Committee on Banking Supervision. The Basel group is seeking to put a ceiling on indebtedness that will prove robust no matter how complicated a bank’s business model, Stefan Ingves, its chairman, said in an interview. 

• European Stocks Retreat as U.S. Government Shutdown Looms. European stocks declined the most in a month, trimming the best quarter in four years, as the U.S. faced the first government shutdown in 17 years and Italian Prime Minister Enrico Letta fought to save his administration. UniCredit SpA and Intesa Sanpaolo SpA (ISP), Italy’s biggest banks, dropped more than 1 percent as the nation’s benchmark FTSE MIB Index slid 1.2 percent. Rio Tinto Group led mining companies lower after a measure of Chinese manufacturing missed a preliminary estimate. Aryzta AG rallied the most in six months as the Swiss supplier of bakery products reported results that topped projections. The Stoxx Europe 600 Index fell 0.6 percent to 310.46 at the close of trading, the biggest drop since Aug. 30.

• Abe Bets It’s Different This Time With Sales Tax Rise. It’s different this time. The four most dangerous words in markets, according to former U.S. Treasury Secretary Larry Summers. With Japan set to raise its sales tax for the first time since 1997, Prime Minister Shinzo Abe’s political future rides on a different outcome than last time -- when the nation slid into a recession and the premier lost his job.

• Corn Slumps to Three-Year Low on Rising Inventory; Soybeans Drop. Corn futures plunged to a three-year low after the U.S. Department of Agriculture boosted its inventory estimate by 25 percent. Soybeans dropped to the cheapest in five weeks as supplies topped analyst estimates by 11 percent.

Wall Street Journal: 

• Budget Battle: Streaming Coverage.

• Shutting Down Emerging Markets. The Real Fallout From Washington's Impasse Could Be Felt Overseas.

Fox News:

• When clock strikes midnight, does the government really shut down? Maybe not. Washington is bracing for the clock to strike midnight, with a government shutdown expected if Congress cannot strike a budget deal -- but despite the frenzy, the government might not turn into a pumpkin right away. Everybody is talking about a midnight deadline, because that is the official time that all discretionary spending (which is the portion that Congress controls) halts as the federal government rolls over from fiscal 2013 to fiscal 2014 on Oct. 1. That doesn't mean that everything stops immediately, however.

• Director nixes Hillary documentary for CNN after pressure from Clinton aides.

CNBC: 

• Market has more to worry about than the shutdown. The U.S. government can't stay closed forever, so by definition its threat to financial markets is temporary. Other headwinds, though, could present more lasting damage. At least three and as many as five challenges face investors once the smoke clears from the bruising Washington battle over funding the government.

• Italy Faces New Elections and Economic Turmoil. (video)

Zero Hedge: 

• Boehner On Delaying Obamcare: "It's What The People Want". (video)

• Chicago PMI Jumps To 4-Month High Even As Employment Tumbles To 5-Month Low. (graph)

• Meanwhile In Italy...

• The Fed Gave Congress A Bottle Of Whiskey And The Car Keys.

• Blackstone's(BX) Private Equity Head Warns: "We Are In The Middle Of An Epic Credit Bubble".

Reuters:

• Unilever warns slowdown in emerging markets has accelerated. Anglo-Dutch consumer goods company Unilever warned on Monday that a slowdown in its emerging markets had accelerated in the third quarter and it now expects underlying sales growth of 3 to 3.5 percent in the period. Developed markets remained flat to down, it said, and overall Unilever said it was on track to meet its 2013 priorities. It attributed the emerging markets slowdown to a significant currency weakening. "We continue to grow ahead of our markets and expect underlying sales growth to improve in quarter four," Chief Executive Paul Polman said.

• Brazil central bank sees inflation high despite weak growth. Inflation in Brazil will remain stubbornly high well into 2015 even as the economy struggles to gain steam, the central bank said on Monday, raising market bets for higher borrowing costs in the future. In its quarterly inflation report, the bank lowered its 2013 inflation forecast to 5.8 percent from 6 percent previously. However, it revised its inflation view for 2014 to 5.7 percent from 5.4 percent previously and said it expects inflation at 5.5 percent in the third quarter of 2015. The bank also revised down its estimate for economic growth to 2.5 percent for this year from a previous 2.7 percent forecast. The bank sees growth keeping that pace until the second quarter of 2014.

• CBOE to increase VIX trading hours in late October.

Valor Economico:

Restructuring: Flowers slams Europe over inaction


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• Brazil to See Credit Squeeze as Public Banks Retreat.

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


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The Daily Reckoning:

• A Coming Emerging Market Crisis?

Haaretz:

• Official: Netanyahu to urge Obama not to lift sanctions on Iran. With diplomatic track gaining momentum, conversation will center on keeping up pressure on Iranian regime, in departure from usual focus on military option.