Evening Headlines
Bloomberg:
- Greece to Determine Euro Membership in Vote as EU Cuts Aid. European leaders cut off aid payments to Greece and said a referendum in five weeks will determine whether the debt-strapped nation becomes the first to exit the 17-country euro area. Crisis talks ended in the French resort of Cannes late yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy withholding 8 billion euros ($11 billion) of assistance and warning Greece it will surrender all European aid if it votes against a bailout package agreed upon only last week. “The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?,” Merkel told reporters. Sarkozy said Prime Minister George Papandreou’s government won’t get a “single cent” of aid if voters reject the plan. The hardball tactics opened the door for the first time for a country to leave the 12-year-old currency bloc that its founders declared was “irrevocable.” The move leaves Greece to choose between austerity and default two days after Papandreou shocked investors and Europe’s leaders by announcing he would allow his electorate to vote on the revamped crisis-fighting strategy. The euro weakened after the briefing, sliding 0.4 percent to $1.3691 at 1 a.m. in Cannes. Futures on Standard & Poor’s 500 Index declined 0.4 percent. Papandreou, his hold on power weakening and facing a confidence vote tomorrow, defended his decision to call a referendum, telling reporters at a separate press briefing that Greece “needs a wider consensus” for the bailout terms and expressing confidence it will back staying in the euro.
- Former U.K. Chancellor of the Exchequer Alistair Darling said in an interview with Sky News that the situation with Greece has created a "more serious" potential crisis than that caused by the collapse of Lehman Brothers and Europan leaders must "get a grip, and now." "What's different now from three years ago is that we had a banking crisis then, pure and simple," Darling said to Sky. "We've now got a major economic crisis which has every risk of spilling back into the banking system so we'll have both an economic and a banking crisis," he said. The crisis isn't going to be resolved until there's a "sensible plan" to boost growth, Darling said. The austerity programs being pursued in Europe are going to "strangle growth" and without growth you get "higher borrowing, higher debt and that's why people are so lacking in confidence," he said. China is unlikely to come to Europe's aid, Darling said. "They'll play for the long-term," he said. "They're going to sit back and they'll watch."
- MF Global(MF) Has Customer Shortfall of $633 Million, CFTC Says. MF Global Inc.’s commodity customer funds have a shortfall of $633 million, or about 11.6 percent, out of a segregated fund requirement of about $5.4 billion, the Commodity Futures Trading Commission said. At a hearing today in U.S. Bankruptcy Court in Manhattan, lawyers for the CFTC said the trustee for the bankrupt broker- dealer may recover the shortfall. MF Global’s trustee won permission to transfer 50,000 accounts where customers of the failed brokerage have 3 million positions and over $100 million at stake, saying the move will help avoid liquidations.
- Italy Skips Key Fiscal Moves. Italian Prime Minister Silvio Berlusconi on Wednesday failed to issue growth-boosting measures demanded by European Union authorities ahead of the Group of 20 summit, raising further doubts about the government's willingness to pass economic reforms aimed at restoring investor confidence in the country. Mr. Berlusconi's cabinet late Wednesday approved a plan to sell state property, slash red tape and roll out infrastructure projects, according to people familiar with the matter, in a bid to cut Italy's €1.9 trillion ($2.6 trillion) debt and revive economic growth. The plan, however, doesn't include measures to address the chronic structural weaknesses—such as costly pension plans, heavy labor regulation and high taxes—that European officials and investors blame for Italy's economic stagnation, the people said. That means Mr. Berlusconi will head to the Group of 20 in Cannes, France, on Thursday without concrete measures to assuage the concerns of EU leaders. It is also unclear whether Mr. Berlusconi can muster the political support to pass in Parliament the meager plan approved Wednesday. Earlier in the day, Italian officials drafted a government decree that would have implemented the measures with immediate effect, said the people familiar with the matter. By the time Mr. Berlusconi's cabinet convened in the evening, however, officials had shelved the draft. Mr. Berlusconi's foot-dragging is likely to erode support for his government and increase tensions with Italy's head of state, President Giorgio Napolitano, who has called for immediate reforms and wields the power to dissolve Parliament.
- Hedge Fund to Shut Down. After more than 40 years as a noted stock-picker and market commentator, Oscar Schafer plans to close down his hedge fund in the next six months, investors said. The decision came as the fund, O.S.S. Capital Management, struggled to recoup steep losses from 2008. By the end of August 2011, the firm's assets under management had dwindled to about $500 million from a peak of almost $2.5 billion, according to investors.
- BNP Paribas' Emma Sugarman Explains Why More Hedge Funds Will Close Before The End Of 2011.
- Here's Everything You Need To Know To Get Ready For Thursday's Big ECB Meeting.
- MF Global(MF) Shines A Light On Monetarism's Incapacity To Enhance The Real Economy.
- Egan Jones Downgrades Jefferies(JEF) On Concerns About Sovereign Exposure Amounting to 77% Of Equity.
- Game Over Berlusconi? Italian Anti-Crisis Bill Fails.
- China Steels Itself Over Policy Tightening. After a year of credit tightening and efforts to cool the property sector, Beijing’s restrictive policies are starting to have a visible impact on the real economy. Nowhere is this clearer than in raw materials like steel, cement and copper, which are linked to construction and the cooling property market. China’s steel production dropped in mid-October to its lowest daily level since January, and global prices for iron ore, a key steelmaking ingredient have dropped more than 30 percent in the last month due to weak Chinese demand. “We feel like winter is already here,” said Zhang Changfu, vice-chairman of the China Iron and Steel Association, a government-linked industry body. “There has been a big shift in the market. Order books are drying up.” Mr Zhang points to plummeting new orders for shipbuilding yards — down 43 percent in the first nine months of this year from the same period last year — as evidence of the deteriorating climate.
- Qualcomm(QCOM) Forecasts Double-Digit Sales Growth. Qualcomm forecast double-digit sales growth for this fiscal year as its quarterly results beat Wall Street estimates due to strong demand for its cellphone chips.
- Oakland Protesters Set Sights on Closing City's Shipping Port. Thousands of Occupy Oakland protesters converged on downtown streets here on Wednesday to march, chant, wave placards, picket banks and otherwise try to expand their anti-Wall Street protest across the city, including what they said would be an effort later in the day to close down the city’s port.
Politico:
- Biden Aide Sought Info On Solyndra Investors, Emails Show. A top aide to Vice President Joe Biden sought information about Solyndra’s private investors just days before the Energy Department made the solar company’s loan guarantee more favorable to the financers, new internal emails released Wednesday show.
USA Today:
- Taxes on Foreigners Raise Cost of Business in China. A controversial new tax on foreign companies and workers is adding to rising business costs in China. The tax requires foreigners to contribute to China's social welfare system for pension, medical, unemployment, work-injury and maternity benefits. Doing so allows foreigners to access social services in China. But it could end up duplicating benefits that workers retain in their own countries while working in China and saddle employers with thousands of dollars in extra costs each year.
- MF Global(MF) Customers Fume as Funds, Trades Frozen. Joe Ocrant, a veteran livestock trader, is livid. His accounts frozen, unable to trade with his bankrupt broker and denied access to the Chicago trading floor, his frustration over the failure of 230-year-old MF Global was turning to rage as regulators said it may have misappropriated some $600 million in customer funds. Ocrant remained hopeful that somehow his collateral at MF Global would be returned. In the meantime, like so many others, he was left idle, unable to transfer or liquidate his trades. "I am aggravated and upset.... I feel fairly confident my customers will be made whole. The question is how long the feds will tie the funds up so they can't be used," said Ocrant, president of livestock-focused fund Oak Investment Group. It was a common tale across the markets.
- Global Shipping Downturn Worse Than 2008 - China Minister. The global shipping industry is experiencing a downturn that is worse than that seen during the 2008 financial crisis, China's transportation minister said. Speaking at an industry conference on the Chinese island province of Hainan on Thursday, Li Shenglin said there was no end in sight to the ongoing shipping downturn. "The shipping industry is in a downturn, which is worse than the financial crisis in 2008," Li told the conference. "This condition may last for a relatively long period of time." The shipping market had been hit by overcapacity as shipowners ordered large numbers of large vessels when the industry was booming, he said. The supply glut has put freight rates under pressure, while rising fuel and other costs have squeezed the margins of operators.
- Whole Foods(WFM) Key Sales Figure Misses Analysts' Views. Upscale grocer Whole Foods Market Inc said a key sales gauge rose less than analysts had expected, and its shares fell almost 5 percent after hours.
- Spain Bond Costs to Jump as Greece Pressures Periphery. Spain's financing costs will edge higher on Thursday when it returns to debt markets under pressure from a planned Greek referendum over its bailout package and faltering attempts to solve a euro zone crisis.
- US Leaders Must Not Hide Under Fed's Skirts - Fisher. U.S. fiscal authorities have run the country into a financial "cul de sac" and must bring the nation's debt under control by changing their "improvident" ways, a top Federal Reserve official said on Wednesday. "Of course, they could skip the curb and keep on moving in the same direction were the central bank to accommodate them by monetizing their debts," Richard Fisher, president of the Dallas Federal Reserve Bank, said in remarks prepared for delivery at the Bastiat-Hoiles Prize Dinner in New York. Such a path would lead to hyperinflation, said Fisher, who is known as an inflation hawk. Lawmakers "must not, and cannot, hide under the skirts of the Federal Reserve," said Fisher, referring to both Republicans and Democrats. "The central bank must never become an accomplice to feckless government."
- Transocean(RIG) Posts Loss on Rising Costs. Transocean Ltd , the largest offshore drilling contractor, reported on Wednesday an unexpected quarterly loss on a rise in shipyard costs, knocking another 7 percent off its battered shares.
- Italy's 'Shock Therapy' as Eurozone Manufacturing Buckles. Europe is sliding into a full-blown industrial recession with contraction spreading to Germany and a drastic decline under way in Italy, greatly complicating efforts to contain the region’s debt crisis. Markit’s manufacturing index for Euroland dropped well below the break-even reading of 50 in October. The data for Italy plunged five points to 43.3, the biggest drop since the survey began in the 1990s. “Italy is a serious concern. Total and export new orders collapsed,” said Francois Cabau from Barclays Capital. Italy’s economy is almost certainly in a double-dip recession already, exacerbating the country’s fragile debt dynamics. Manufacturing data for the eurozone as a whole showed the fastest decline since mid-2009 in new orders and export orders. Germany has at last tipped over into contraction as markets cool in Asia. Italy’s premier Silvio Berlusconi was closeted with top ministers on Wednesday night, drawing up “shock therapy” measures in time for Thursday’s G20 summit in Cannes. Italy’s press reported the drastic steps to be pushed through by decree may include levies on bank accounts, as occurred during the ERM crisis in July 1992 as a last-ditch move to save the lira. The hated policy amounted to wealth confiscation and failed to stop Italy being blown out of the system two months later. Plans for some form of property wealth tax have also been mooted. Such one-off moves do nothing to lift Italy out of its stagnation trap. The country is suffering the delayed effects of a 30pc to 40pc loss of labour competitiveness against Germany within EMU, an overvalued euro externally against China, and a 70pc collapse in foreign direct investment (FDI) flows into Italian plant since 2007. Capital flight from Italy has become a grave threat. The central bank reported a €21bn (£18bn) exodus in August, following a €20bn loss in July. “I fear these figures are likely to get worse, “ said Rony Hamaui from Milan’s Catholic University. It is unclear whether Mr Berlusconi’s coalition can hold together if he agrees to EU demands for sweeping pension and labour reform. Northern League leader Umberto Bossi threatened to set off “revolution” if money is taken from pensioners to bail out Rome, a reminder his party began life calling for an independent state of “Padania” in the North. The skirmishes came as president Giorgio Napolitano summoned key party leaders for urgent talks and hinted at the drastic step of appointing a salvation government. “Contagion to Italy is a whole new ball game, so everybody is fixated on Italian yields,” said David Bloom from HSBC. “The idea behind the Greek bail-out is to keep the pin firmly in the grenade.” Irish finance minister Michael Noonan said the European Central Bank (ECB) will have to come to the rescue. “The firewall to prevent contagion spreading to countries like Italy and Spain is not yet in place. They need to go into the market and say they have a wall of money and, no matter how much speculation there is, keep buying Italian bonds. I think they will do that. They don’t have any choice,” he said.
- Nicolas Sarkozy Tells Greece: If You Don't Stick To The Rules, Leave The Eurozone. The break-up of the eurozone has been dramatically placed in the hands of the Greek people as George Papandreou announced that a referendum on the Hellenic Republic’s membership will be held on December 4.
- Debt Crisis: Live.
- UK Military Steps Up Plans for Iran Attack Amid Fresh Nuclear Fears. British officials consider contingency options to back up a possible US action as fears mount over Tehran's capability. The Ministry of Defence believes the US may decide to fast-forward plans for targeted missile strikes at some key Iranian facilities. British officials say that if Washington presses ahead it will seek, and receive, UK military help for any mission, despite some deep reservations within the coalition government.
- German Finance Minister Wolfgang Schaeuble wants to discuss the introduction of a global financial transaction tax at a Group of 20 summit starting today in Cannes, citing an interview. The EU proposed a financial transaction tax that would take effect in 2014 and raise about $78 billion a year.
Evening Recommendations
CSFB:
- Rated (MDT) Outperform, target $45.
- Rated (BSX) Outperform, target $7.50.
- Asian equity indices are -1.50% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 203.50 +2.25 basis points.
- Asia Pacific Sovereign CDS Index 155.0 unch.
- FTSE-100 futures -1.15%.
- S&P 500 futures -1.15%.
- NASDAQ 100 futures -.71%.
Earnings of Note
Company/Estimate
- (NYX)/.70
- (STRA)/1.06
- (CVS)/.67
- (RGLD)/.45
- (DTV)/.72
- (MGM)/-.15
- (SLE)/.17
- (ATK)/2.05
- (ENR)/1.26
- (IACI)/.49
- (ANR)/.04
- (DUK)/.46
- (IRF)/.37
- (APA)/2.79
- (MDRX)/.22
- (RRGB)/.22
- (SBUX)/.36
- (WRC)/1.07
- (CHK)/.66
- (FLR)/.85
- (MCHP)/.46
- (MHK)/.86
- (EL)/1.18
- (K)/.89
8:30 am EST
- Preliminary 3Q Non-farm Productivity is estimated to rise +3.0% versus a -.7% decline in 2Q.
- Preliminary 3Q Unit Labor Costs are estimated to fall -1.0% versus a +3.3% gain in 2Q.
- Initial Jobless Claims are estimated at 400K versus 402K the prior week.
- Continuing Claims are estimated to rise to 3693K versus 3645K prior.
- ISM Non-Manufacturing for October is estimated to rise to 53.5 versus 53.0 in September.
- Factory Orders for September are estimated to fall -.2% versus a -.2% decline in August.
- None of note
- The ECB rate decision, Fed's Fisher speaking, Fed's Lockhart speaking, EFSF Bond Auction, G-20 Summit, ICSC Chain Store Sales for October, RBC Consumer Outlook Index for November, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (FFIV) investor meeting, (TGI) investor day and the (TAC) investor day could also impact trading today.