Friday Watch

Evening Headlines

Bloomberg:

• Italy Yields Drive Record Central Bank Financing. Italy’s highest bond yields since the birth of the euro are reverberating through the financial system of Europe’s biggest debt issuer, driving lenders to seek record amounts of central bank financing. Italian banks borrowed 111.3 billion euros ($152 billion) from the European Central Bank at the end of October, up from 104.7 billion euros in September and 41.3 billion euros in June, Bank of Italy data show. The five biggest lenders -- UniCredit SpA (UCG), Intesa Sanpaolo, Banca Monte dei Paschi di Siena SpA, Banco Popolare SC and UBI Banca ScpA -- accounted for 61 percent of the country’s use of ECB resources in September, almost double the share in January. After punishing Greece, Ireland and Portugal for their rising debt loads, the bond market is now targeting Italy, pushing bonds yields in the euro zone’s third-largest economy above 7 percent as the nation’s lenders prepare to refinance $120 billion of debt maturing next year. Italy’s $2 trillion in liabilities exceed those three countries combined, plus Spain. “The banks are deleveraging on a tightrope,” Alberto Gallo, a credit strategist at Royal Bank of Scotland Group Plc (RBS) in London, said in an interview. The slump in Italy’s bonds, which sent the 10-year yield soaring to as high as 7.48 percent Nov. 9, is reducing the value of fixed-income securities held by banks, eroding their value as collateral for loans, Gallo said. Bond investors charged the nation an interest rate of 6.087 percent yesterday to buy 5 billion euros of one-year bills, the highest in 14 years. Greece, Ireland and Portugal sought a bailout from the ECB, the European Union and the International Monetary Fund after their bond yields rose above 7 percent amid the region’s sovereign debt crisis. As Italy’s government faces collapse after Prime Minister Silvio Berlusconi promised to resign once Parliament approves austerity measures, deputy finance ministers meeting at the Asia-Pacific Economic Cooperation forum in Hawaii this week expressed concern over the danger Europe poses to the world economy. The extra yield investors demand to hold Italian 10-year debt rather than German bunds rose to a euro-era record 5.53 percentage points on Nov. 9 before falling back to 5.12 percentage points. Italy’s top 32 banking firms have about 88 billion euros, or 3.2 percent of their liabilities, maturing in 2012, according to the Bank of Italy. Next year’s maturities coincide with about 307 billion euros of the government’s debt coming due, the most ever, according to data compiled by Bloomberg. Italian banks’ share of ECB lending rose to about 19 percent of the total in October, according to the Bank of Italy. That’s up from 15 percent, or 91 billion euros, in September, the data show. “The Italian banks are trapped,” said Roger Doig, a London-based analyst at Schroders Plc, which manages about $58 billion in fixed-income assets. “They are where they are and that’s with the Italian sovereign. The austerity required if the sovereign wants to remain in the euro zone means there’s going to be a recession, which will mean losses for the banks.” Credit-default swaps tied to the senior debt of UniCredit, a proxy for the cost of funding at Italy’s biggest lender, jumped 150 basis points this month to 502 basis points, approaching the record 504 reached in September. Contracts on Intesa Sanpaolo, the second-largest, jumped 129 to 467, also close to an all-time high, according to CMA in London. Five-year contracts on Italy were little changed at a record 570 basis points, up from 239 at the beginning of the year, according to CMA.
  
• Merkel's Greek Strategy Risks Backfiring as Euro's Exit Routes Are Mapped. Germany and France’s drive to force Greece to honor its euro commitments risks backfiring on Chancellor Angela Merkel and President Nicolas Sarkozy. A week after the currency’s guardians declared for the first time that countries can be ejected from the 17-nation bloc, U.S. stocks tumbled on concern German politicians are already creating exit chutes for the weakest members. The sell-off suggests Europe’s crisis is spiraling into a new stage as investors bet on which countries are most likely to quit the euro, starting with Greece. The risk is that this will make it harder for debt-laden countries to convince investors they can get their finances in order and for policy makers such as Merkel, Sarkozy and European Central Bank President Mario Draghi to bolster the euro’s defenses. “This is a dangerous phase,” Neil MacKinnon, global macro strategist at VTB Capital in London and a former U.K. Treasury official, told Bloomberg Television’s “On the Move” with Francine Lacqua yesterday. “All of a sudden, we’re talking about the future of monetary union in its current format.”
• Europe's Small Businesses Seek Exports - Fast. Small-to-midsize enterprises struggle with high costs and little domestic demand. The small-to-midsize enterprises of Europe’s periphery—Ireland, Spain, Greece, Portugal, and Italy—have their backs to the wall. Their domestic markets are tanking.
• Greek Unity Government Led by Lucas Papademos Will Seek to Avoid Collapse. The new Greek unity government led by Lucas Papademos, former vice president of the European Central Bank, will face the task of securing funds to avert the country’s economic collapse. President Karolos Papoulias gave Papademos the mandate to form a government after receiving proposals from Prime Minister George Papandreou, Antonis Samaras, leader of the opposition New Democracy party, and opposition LAOS party leader George Karatzaferis, according to an e-mailed statement from the president’s office in Athens. The new government will be sworn in today at 2 p.m. “I am not a politician but I have dedicated the biggest part of my professional life to economic policy both in Greece and Europe,” Papademos told reporters after being named. “The Greek economy still faces huge problems despite the huge efforts that have been made for fiscal consolidation and to improve competitiveness. Greece is at a critical crossroads.”
• Panetta Says Attack on Iran Would Only Delay Nuclear Program. U.S. Defense Secretary Leon Panetta said an attack on Iran’s nuclear facilities might delay its alleged nuclear weapons program by only up to three years and he warned of “unintended consequences.” While a military option must be kept available, it might not result in “really deterring Iran from what they want to do,” he said. “You’ve got to be careful of unintended consequences here,” Panetta said at a Pentagon press conference. “It could have a serious impact in the region and it could have a serious impact on U.S. forces in the region,” he said of a hypothetical U.S. military strike.
• MF Global(MF) Missing Funds May Be 'Massive' Ploy, Chilton Says. The $593 million shortfall in client money at MF Global Holdings Ltd., the broker that filed for bankruptcy on Oct. 31, appears to result from a "massive hide- and-seek ploy," Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, said today. The agency took the rare step of publicly announcing its investigation, which began on Oct. 31, saying it was in the public interest to confirm the enforcement action. Jill E. Sommers was named as the senior commissioner during the probe, after Gary Gensler, the agency's chairman, recused himself. "This isn't just a lost and found inquiry; it's a full-on effort to get to the bottom of what appears to be a massive hide-and-seek ploy," Chilton, a Democrat, said in an e-mail. "It's a distinct possibility, some would say probability, that somebody has done something with the money, and that it's not going to be 'all of a sudden discovered' with an innocent explanation," Chilton said. "If that's the case, it's patently illegal. I don't know yet. Our investigation will uncover that, and we're aggressively pursuing this." Gensler recused himself from the investigation because of his history with Jon S. Corzine, the former head of MF Global. Gensler worked with Corzine at Goldman Sachs Group Inc. and during his time as a Senate aide, while Corzine represented New Jersey as a U.S. senator.
• Gold Traders Most Bullish Since '04 on Debt Crisis: Commodities. Gold traders and analysts are the most bullish in at least seven years as investors accumulate metal at the fastest pace since August to protect their wealth from a widening European debt crisis. Twenty-one of 22 surveyed by Bloomberg expect bullion to rise on the Comex in New York next week, the third consecutive increase and the highest proportion in data going back to April 2004. Holdings in exchange-traded products backed by gold rose 25.4 metric tons this week, within 1 percent of the record set almost three months ago, data compiled by Bloomberg show. Gold exceeded $1,800 an ounce for the first time in seven weeks on Nov. 8 and hedge funds are holding their biggest bet on higher prices since mid-September, Commodity Futures Trading Commission data show.
• Harvard's Walkout Students Misunderstand Economics: Amity Shlaes. What’s wrong with Ec 10? The dozens of Harvard University undergrads who walked out of the school’s famous introductory economics course this month think they know. The students’ general criticism is that Ec 10, in which some 700 students are enrolled, “espouses a specific -- and limited -- view of economics.” Their specific criticisms are that economics as taught in this class, formally called Economics 10, failed to prevent the financial crisis and does nothing to narrow the gap between rich and poor.
• JPMorgan Grabs Europe Loan Share as French Waver: Credit Markets. U.S. banks led by JPMorgan Chase & Co. and Citigroup Inc. are boosting their share of loan underwriting in Europe to the highest since 2007 as French lenders' dominance ebbs amid the region's expanding debt crisis. The Wall Street banks captured 10 percent of the $860 billion of loans arranged this year, up from 8 percent in 2010. BNP Paribas SA, Credit Agricole SA and Societe Generale SA have 15 percent of the market, the least since 2006 and down from 16.5 percent a year ago, according to data compiled by Bloomberg. BNP Paribas and Credit Agricole remain the top two lenders. Societe Generale slipped back to its No. 6 ranking of 2009. “The trend of U.S. banks taking market share from the French banks has started and will probably continue as U.S. lenders are in a better situation now having addressed their problems from 2007 and 2008, whereas French banks are facing the need to adapt,” said Elisabeth Grandin, a director in Standard & Poor's European financial services group in Paris.

Wall Street Journal:

• New Group in NY Says 'Hydrofracking' Can Be Safe. A new coalition of New York business groups, landowners and construction companies is weighing in on the controversy over hydraulic fracturing of gas wells in the Marcellus Shale formation. Clean Growth Now says it's a grass-roots group that hopes to strike a middle ground for safe, responsible drilling in the Southern Tier. The group says it will be a moderate voice between the gas industry and environmentalists who oppose "hydrofracking." The group's leaders say Thursday they fear the polarization could lead to the upstate economy missing out on the boom they see in northern Pennsylvania. The group of 16 organizations includes the Associated Builders and Contractors, the state Business Council and the Greater Binghamton Chamber of Commerce.
• U.S. Plans Bomb Sales in Gulf to Counter Iran. The Obama administration has quietly drawn up plans to provide a key Persian Gulf ally with thousands of advanced "bunker-buster" bombs and other munitions, part of a stepped-up U.S. effort to build a regional coalition to counter Iran. The proposed sale to the United Arab Emirates would vastly expand the existing capabilities of the country's air force to target fixed structures, which could include bunkers and tunnels—the kind of installations where Iran is believed to be developing weapons.
• Risk Rises for Housing Agency. Concerns are rising that the Federal Housing Administration could run out money if the economy doesn't recover soon, raising the risk the agency would seek a taxpayer bailout for the first time in its 77-year history. Since the mortgage crisis erupted five years ago, the FHA has played a critical role in housing finance as private lenders retreated. It backs about a third of all new mortgages originated for home purchases, up from around 5% in 2006.
• If Iran Gets the Bomb. The world immediately becomes a far more dangerous place.

Business Insider:

• Morgan Stanley: A Super-Committee Failure Could Trigger Another S&P Downgrade.
• Congratulations Occupy Wall Street. You're Officially Making Companies Scared.
• The Privatization Of Britain's National Health Service Has Begun.

Zero Hedge:

• Fed Opens New FX Swap Line With Bank Of Japan; Second After ECB.
• Italian Banks Are 'Free'-To-Trade As Short-Sale-Ban Is Not Extended.
  

CNBC:

• Ties to Oil World Hit Emerging Markets. As the eurozone crisis spreads from Greece to Italy, countries far afield are being sucked into the maelstrom. The world’s emerging markets, which led the way out of global recession in 2009, are now suffering because of their ties to the Old Continent. And they may not be as well placed as three years ago to again help pull the world back from the brink.
• Disney(DIS) Beats Earnings Forecast; Shares Rise Slightly. Walt Disney topped analysts' expectations for its quarterly profit and revenue on Thursday as advertising held strong at its ESPN sports channel and other media networks, sending shares higher after the closing bell.

NY Times:

• In MF Global's(MF) Wake, Regulators to Audit All Futures Firms. Federal regulators have ordered an audit of every American futures trading firm to verify that customer money is protected, a move that comes after roughly $600 million in client funds went missing from MF Global, the bankrupt brokerage firm once run by Jon S. Corzine.

Seeking Alpha:

• 16 Retail Stocks Bought Up By Hedge Funds.

Fox News:

• Perry's Performance Opens Door Wider For Gingrich.

USA Today:

• Traditional Turkey Dinner Costs 13% More Than A Year Ago.

Reuters:

• EFSF's Regling Says Market Turmoil May Affect Rescue Fund - FT. The head of the euro zone's rescue fund Klaus Regling believes this week's market upheaval in Europe has made it difficult to increase the bloc's 440 billion euro bailout fund to 1,000 billion, the Financial Times reported on Friday. Euro zone countries had hoped to leverage the European financial stability facility fund by December, but that possibility has been reduced by the problems in the bloc this week, the newspaper paraphrased Regling as saying. Investors have fled from bonds issued by highly indebted countries and luring them back by offering insurance on losses, the centrepiece of a plan agreed in Brussels on October 26, would now probably use up more of the fund's resources, the article cites Regling as saying. "The political turmoil that we saw in the last 10 days probably reduces the potential for leverage. It was always ambitious to have that number, but I'm not ruling it out," he is quoted as saying. Regling said, according to the article, that heightened investor skittishness meant the guarantees would now have to be bigger in order to convince investors to participate, meaning the fund was likely to have only three to four times the firepower. "At least for a while, maybe the leverage is less than what we hoped three weeks ago. My expectation is it will get better because we do have a new government in Greece, and that helps."
• INSIGHT - China's Cash For Commodities Gamble Heightens Property Threat. Sitting in China's copper and steel warehouses is a hidden risk to the world's second-largest economy -- banks' indirect exposure to a property market that is showing signs of stress. Since late 2010, Chinese entrepreneurs and state firms have used trade loans to import goods such as copper and soybeans, which they have then quickly sold or used as collateral for further loans, skirting government credit curbs. Many lent that cash in informal markets, earning as much as 70 percent interest -- a nice return given that bank fees and commissions on letters of credit (LC) can be as low as 3 percent for established companies, and allow payment some six months down the line. With a chunk of their loans business in lockdown after Beijing clamped down on lending, especially for the property sector, banks found such trade financing an attractive alternative as it had not fallen under the central bank's ever-tightening restrictions. While Beijing has moved to clamp down on the practice, banks are still exposed to an unexpected batch of bad loans should a slump in property prices and sales coincide with another sharp fall in commodity prices. "Banks are already heavily exposed to the property sector and if a chunk of their trade finance books is also exposed to real estate, they could be in for a double whammy," said Stanley Li, China banking analyst at Mirae Assets. "The end-game may be very nasty if higher financing costs, a property price correction and a slump in commodity prices trigger waves of defaults," said Li, who has researched extensively into the risk of this cash-for-commodity phenomenon in China.
• Molycorp(MCP) Q3 Profit Soars, Misses Estimates. Molycorp swung to a third-quarter profit on Thursday as it sold more rare earth product at a higher average price, but the company missed analysts' estimates and shares were down in aftermarket trade. Shares were down 9.3 percent at $35.10 in aftermarket trade on Thursday on the New York Stock Exchange.

Financial Times:

• Pirelli Chairman Marco Tronchetti Provera said the tire producer is preparing a worst-case contingency plan for the possibility that the euro-area crisis will trigger a drop in global car sales of 10% and in truck sales of 20%, citing an interview. Pirelli is also preparing for the eventual further consolidation of trading blocs and protectionist measures should there be "a slowdown and a severe slowdown linked to the crisis," Tronchetti Provera said.
• US Officials Consider Options On Mortgages. US policymakers are considering ways to buy troubled government-guaranteed mortgages from a new refinancing programme in case investors balk, according to people familiar with the matter.

Telegraph:

• The Euro Is Being Held Together Only By Fear. There has been a lot of "thinking the unthinkable" over the past week. If the euro is ultimately unsustainable, why not just face up to reality and let this grand exercise in political hubris go? Would the consequences really be quite as bad as conventional analysis makes out? These questions need deconstructing.
• New Recession Threatens the Globe as Debt Crisis Grows. Europe's escalating debt crisis has cast a black shadow over the world's fragile recovery, threatening to tip large parts of the global economy into a deep downturn and even outright recession. The OECD's index of leading indicators for China, India, Brazil, Canada, Britain and the eurozone have all tipped below the warning line of 100, with the pace of the decline in Europe exceeding the onset of the Great Contraction in early 2008.

Ansa:

• Italian Prime Minister Silvio Berlusconi said during a meeting with lawmakers from his People of Liberty part last night that they "must meet again to decide" on their position about a new government. The meeting "will be on Sunday night or Monday, citing Senator Sergio Di Gregorio speaking as he was leaving the senate. The People of Liberty party mustn't allow itself to be "influenced" or have terms "dictated" to it by others, Berlusconi said during the meeting. The party could suggest a candidate of its own, such as former Italian prime minister, Lamberto Dini, Berlusconi said.

cbcnews:

• Alberta Posts Oilsands Information Online. The Alberta government opened an online oilsands site which posts information on everything from greenhouse gas emissions to oil production to land disturbance — in one place, for free.
  

South China Morning Post:

• China Advised to Reduce or Scrap Electric-Car Subsidies. National Energy Advisory Committee Vice Chairman Zhou Dadi said the technology hasn't reached maturity and consumers aren't yet interested.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 204.50 -11.0 basis points.
  
• Asia Pacific Sovereign CDS Index 151.75 -3.5 basis points.
• FTSE-100 futures +.91%.
  
• S&P 500 futures +.61%.
  
• NASDAQ 100 futures +.71%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DHI)/.14

Economic Releases
9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for November is estimated to rise to 61.5 versus 60.9 in October.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Williams speaking, ECB's Gonzalez-Paramo speaking, (NTCT) Investor Day and the (KBR) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology 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.

Stocks Rising into Final Hour on Euro Bounce, Short-Covering, Better US Economic Data, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 33.21 -8.13%
  
• ISE Sentiment Index 92.0 +22.67%
  
• Total Put/Call 1.20 -9.77%
  
• NYSE Arms 1.03 -86.60%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 128.90 +2.49%
  
• European Financial Sector CDS Index 269.90 +9.17%
  
• Western Europe Sovereign Debt CDS Index 346.33 +.65%
  
• Emerging Market CDS Index 303.63 -2.33%
  
• 2-Year Swap Spread 45.0 +3 bps
  
• TED Spread 45.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 181.0 +7 bps
  
• China Import Iron Ore Spot $134.80/Metric Tonne +.30%
  
• Citi US Economic Surprise Index 31.80 +7.5 points
  
• 10-Year TIPS Spread 2.09 +6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +28 open in Japan
• DAX Futures: Indicating +19 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 recoups some of yesterday's losses despite rising Eurozone debt angst, rising global growth worries and rising energy prices. On the positive side, Oil Tanker, Energy, Oil Service, Networking, Homebuilding and Road & Rail shares are especially strong, rising more than 1.5%. Gold is falling -.38% and the UBS-Bloomberg Ag Spot Index is down -.95%. The 10-year yield is rising +8 bps to 2.05%. The Italian/German 10-Year Yield spread is falling -41.75 bps to 510.82 bps. On the negative side, Coal, Alt Energy, Ag, Biotech, Gaming and Airline shares are lower on the day. Oil is rising +1.95%, copper is falling -2.3% and Lumber is falling -2.33%. Major Asian equity indices fell 2-5% overnight. Hong Kong plunged -5.25% and is now down -17.67% ytd. Major European equity indices were mixed today despite the euro bounce and yesterday's large losses. The France sovereign cds is rising +3.31% to 202.83 bps, the China sovereign cds is soaring +13.7% to 150.41 bps, the Italy sovereign cds is only -.65% lower to 566.67 bps, the Brazil sovereign cds is surging +2.22% to 157.41 bps and the Israel sovereign cds is up +3.23% to 186.25 bps. Moreover, the European Investment Grade CDS Index is rising +3.65% to 174.71 bps. Rice is still close to its multi-year high, rising +23.0% in about 4 months. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is soaring to the highest since June 2010 today. The Libor-OIS spread is now at the widest since July 2009. The 3-Month Euro Basis Swap is dropping -7.18 bps to -114.18, which would be the lowest close since Dec. 2008. The 2-Year Euro Swap spread is making another new cycle high today, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -29.76% since February 16th and -25.52% since Sept. 7th. AAII % Bulls rose to 44.74, while the % Bears fell to 24.56, which is a large negative considering the macro headwinds. The divergence of oil from copper and the euro is noteworthy and likely reflects intensifying fears over an attack on Iran rather than rising global growth optimism. Imminent attack fears are overblown, in my opinion. Oil should begin to top out soon, however a convincing surge above $105/bbl. would be another huge negative for the fragile global economy. Select market-leading stocks are substantially underperforming today, which is always a red flag. The upcoming passage of Italian austerity measures may temporarily boost stocks again, however these same measures will worsen Italy's debt problems over the intermediate-term, in my opinion. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, greater financial sector pessimism, rising global growth worries, profit-taking and more shorting.

Today's Headlines

Bloomberg:

• ECB's Policy Makers Say They Can't Do Much More to Stem Financial Crisis. European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs. “Not much more can be expected from us, it’s up to the governments,” Governing Council member Klaas Knot, who heads the Dutch central bank, told lawmakers in The Hague today. Three other policy makers have also publicly rejected calls for more ECB intervention and two further officials, who spoke on condition of anonymity, said the central bank has no plans to make its purchase program unlimited. Bond yields in Italy, the third-largest economy in the 17- nation euro region, have surged above the 7 percent level that led Greece, Portugal and Ireland to seek bailouts from the European Union and International Monetary Fund. With politicians still unable to find a solution to the debt crisis that has raged for two years, the ECB is being asked to step into the breach to hold Europe’s monetary union together. The central bank, which cut interest rates last week, lends banks as much cash as they need and has announced a second round of covered-bond purchases. That 40 billion-euro ($55 billion) program started yesterday, said two people familiar with the matter.
• French Bond Risk Rises to Record as Crisis Spreads Beyond Italy. The cost of insuring against default on French government debt rose to a record on concern Europe’s leaders are failing to contain the region’s deficit crisis. Credit-default swaps on France rose eight basis points to 204, according to CMA prices at 12 p.m. in London, surpassing the record closing price of 202 set Sept. 22. The Markit iTraxx SovX Western Europe Index increased for a fifth day, climbing four basis points to a five-week high of 345. The European Union predicted that the French economy will grow more slowly next year than President Nicolas Sarkozy projects and called for “close vigilance” on the nation’s budget deficit. European Central Bank Governing Council member Klaas Knot said the bank, which was said to purchase Italian and Spanish bonds today after a rout of the securities yesterday, can’t do “much more” to stem the debt crisis. “France is starting to become more like a credit than a government bond,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “As Italy goes, so will the rest of the EU. It totally depends on Italy.” Swaps on Italy fell eight basis points to 563 and Spain declined 11 to 420, after earlier rising to records, CMA prices show. Italy sold one-year bills at an average yield of 6.087 percent today after 10-year note yields surged past the 7 percent level at which Greece, Ireland and Portugal sought international bailouts. The additional yield investors receive for holding 10-year French, Spanish, Austrian and Belgian bonds instead of benchmark German bunds rose to euro-era records earlier. The European Commission predicts that France’s debt burden will climb to almost 92 percent of GDP in 2013, including the support it’s giving to other European countries and to its banks. Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings increased 4 basis points to 755.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1.25 basis points to 183.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 7.5 basis points to 282.5 and the subordinated index was 13 higher at 518.
• Recession Risk Grows for Euro Region as Commission Reduces 2012 Forecast. The European Commission cut its euro-region growth forecast for next year by more than half and said it sees the risk of a recession as leaders struggle to contain the fiscal crisis. Gross domestic product may grow 1.5 percent this year and 0.5 percent in 2012, the Brussels-based commission said today. It had earlier projected the 17-nation region to expand 1.6 percent and 1.8 percent this year and next, respectively. In 2013, the economy may expand 1.3 percent, the commission said. The euro-area economy is edging toward recession as governments are seeking ways to end the turmoil that has rattled global equity markets. In Italy, Prime Minister Silvio Berlusconi failed to convince investors that his country can slash the region’s second-largest debt burden. The commission said the risk of an economic contraction is “not negligible” and identified the fiscal crisis among the main threats. “The outlook is unfortunately gloomy,” Olli Rehn, the EU economic and monetary affairs commissioner, told reporters in Brussels today. “The forecast is in fact the last wake-up call. The recovery has now come to a standstill and there’s the risk of a new recession unless determined action is taken.”
• Derivatives Erase October Optimism on Stresses: Credit Markets. October's optimism that Europe would solve its sovereign debt crisis has evaporated in the bond market. Credit-default swaps tied to an index of European banks from Italy's UniCredit SpA to London-based HSBC Holdings Plc are at the highest level since Oct. 5. In the U.S., a benchmark index of the cost to protect corporate debentures from losses rose yesterday the most in almost seven weeks. Interest-rate swap spreads, a gauge of stress in credit markets, are the widest in 17 months. Waning confidence threatens to make it more expensive for companies to raise financing, after bond returns soared last month by the most in more than two years as European leaders cobbled together a rescue package for Greece. Bondholders are demanding euro-era record yields to hold notes from Italy, the third-most indebted nation, with $2.15 trillion of debt. That compares with $469 billion for Greece. "People were kidding themselves to think that we were out of the danger zone," said David Nowakowski, credit strategist at Roubini Global Economics LLC in London. "The spillovers to the rest of Europe, through the economies, contagion effects in international markets, the damage to banks holding Italian bonds, would be much more severe for Italy than for Greece." Credit-default swaps, which typically rise as investor confidence deteriorates and fall as it improves, climbed yesterday for the biggest U.S. banks. Contracts linked to the debt of Morgan Stanley and Goldman Sachs Group Inc., both of New York, reached the highest levels in at least three weeks.
• Crude Oil Increase to Three-Month High. Crude for December delivery climbed $2.02, or 2.1 percent, to $97.76 a barrel at 1:44 p.m. on the New York Mercantile Exchange. Earlier, it touched $98.18, the highest intraday level since Aug. 1. Prices have risen 7 percent this year. Futures dropped for the first time in six sessions yesterday. Brent oil for December settlement gained $1.09, or 1 percent, to $113.40 a barrel on the London-based ICE Futures Europe exchange.
• Copper Drops to Two-Week Low as European Union Cuts Forecasts for Growth. Copper fell to the lowest price in more than two weeks as the European Union cut its growth forecast for next year by more than half amid the struggle to contain the debt crisis. Gross domestic product may expand 1.5 percent this year and 0.5 percent in 2012, the European Commission, the EU’s executive arm, said today. That’s down from projected expansion at 1.6 percent and 1.8 percent, respectively. Copper also dropped as China’s exports climbed at the slowest pace in almost two years, signaling cooling growth.
• U.S. Wind Market May 'Fall Off a Cliff' in 2013, Vestas CEO Says. The U.S. wind turbine sales may dry up in 2013 unless lawmakers extend tax credits supporting the market beyond the end of next year, said Vestas Wind Systems A/S Chief Executive Officer Ditlev Engel. The so-called production tax credit, or PTC, provides an incentive of 2.2 cents a kilowatt-hour for electricity from wind applied to operators' tax bills. In the past, the termination of such policies has shown markets can "disappear," Engel said today by phone interview. "Our concern is that if the PTC is not extended, history has shown us that these markets tend to fall off a cliff," Engel from the company's headquarters in Aarhus, Denmark. "We should prepare ourselves for it."
• U.S. Budget Deficit Narrowed to $98.5 Billion in October. The U.S. government’s budget deficit narrowed in October, the first month of the new fiscal year, reflecting a calendar-related reduction in spending and an increase in tax receipts. The $98.5 billion shortfall is smaller than the $140.4 billion deficit posted in the same month last fiscal year, according to Treasury Department data issued today in Washington. Economists projected a $102.5 billion gap, according to the median estimate in a Bloomberg News survey. The narrowing comes as a 12-member congressional supercommittee of Democrats and Republicans tries to find $1.5 trillion in savings over the next decade before an approaching deadline triggers spending cuts. America’s budget deficit was 8.7 percent of gross domestic product in fiscal 2011, the third- highest since 1945. “There is precious little progress being made on cutting back the mountain of red ink,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If the supercommittee is going to be the bust that everyone is talking about, the U.S. could be saddled with increasingly hard-to-finance deficits from now on.” Today’s report showed federal spending dropped 8.7 percent in October from a year earlier to $261.5 billion. Some $31 billion in recurring benefit payments that would have been made in October were instead shifted to September because Oct. 1 fell on a Saturday, Treasury said. Without this shift in payments to the previous month, the October deficit would have been $129 billion.
  

Wall Street Journal:

• SEC Probes Nabors's Executive Perks, Jets. Nabors Industries Ltd., the oil-drilling contractor whose chairman is set to receive $100 million for relinquishing his chief-executive title, said Wednesday that the Securities and Exchange Commission has opened an investigation into perks received by its executives, including personal flights on company jets.
• Debt Crisis: Live Blog.
  

CNBC.com:

• Employers 'Scared' of Taking on Permanent Staff. Employers burnt by the cost of laying off workers in the last crisis are uneasy about taking on permanent staff amid faltering economic growth putting pressure on the current workforce, a staffing industry executive said on Thursday.

Business Insider:

• Right Now, Europe Is In The Same Position As It Was Right Before World War I.
• Al Gore Spears President Obama For Playing Gold While Thousands Protest Tar Sands Pipeline.
  

Zero Hedge:

• CDU Escalates Plans For EU Treaty 'Adjustment': Wants Option To Kick Habitually Broke Countries Out Of Eurozone.
• S&P Explains How A Technical Error May Have Led To Believe That France Is Massively Overrated At AAA.
• French Bund Spreads Hit Record On Fresh Downgrade Rumor. (graph)
  

Bespoke Investment Group:

• Bearish Sentiment Drops to 10-Month Low. (graph)

LA Times:

• Prospect of Online Sales Tax Grows. Momentum builds after Amazon's deal with California. A bipartisan group of U.S. senators introduces the Marketplace Fairness Act to let states collect sales taxes from most Internet retailers.

Reuters:

• Italian Banks Risk Becoming Dependent on ECB. The latest hike in how much it costs banks to raise funds using Italian bonds as collateral may be the last straw on the back of Italian lenders, pushing them to the point where they become dependent on loans from the European Central Bank. If Italy fails to pursue reforms that boost growth and cut debt and euro zone policymakers don't take measures that win Italy time to implement them, bond yields are likely to rise further prompting another increase in repo margins. That will again lead to a rise in bond yields and result in a spiral similar to what happened in Greece and Ireland, countries whose banks are now dependent on ECB support via its unlimited euro liquidity tenders. "If there is no improvement in the secondary (bond) market it is inevitable that you see more damage from further increases in (repo margins)," said Nikolaos Panigirtzoglou, global market strategist at JPMorgan. "Italian banks are shut out of unsecured markets. The big question right now is are the political changes that are being engineered at the moment enough to reverse the damage? My guess is that the damage to a large extent is not reversible." It may not be long before the snowball starts to roll.
• Jobless Claims Fall 10,000 in Latest Week. New U.S. claims for unemployment benefits declined for the second straight week, to the lowest level since the first week of April, the Labor Department said on Thursday. Initial claims for state unemployment benefits fell 10,000 to a seasonally adjusted 390,000 in the week ended November 5, slightly below the 400,000 that analysts polled by Reuters had expected. The four-week moving average of claims, considered a better measure of labor market trends, fell to 400,000 from 405,250 the prior week, which was revised up from the previously reported 404,500.

Financial Times:

• Italian CDS Curve Inverts (and who made money?) It’s not every day the second-biggest name in the CDS market goes from a healthy shape to a distressed one. But Wednesday was that day, thanks to Italy.

Telegraph:

• Italy is Sinking into Depression, and That is Before Any Act of Default. Here we go. The European economy seems already to have gone over the edge of the cliff, and that's before any of the eurozone 17 has technically defaulted. This morning's industrial production figures from Italy were a disaster, with output down a staggering 4.8pc in September.
• Eurozone Crisis: Who is Pulling the Strings in Europe? As the escalating eurozone crisis has toppled governments in Italy and Greece, decision-making is increasingly being driven by France, Germany and a powerful group of Brussels officials.

BBC:

• Italy's 'Web' of European Debt. (audio)
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth (+.47%)

Sector Underperformers:

• 1) Airlines -1.21% 2) Gaming -.91% 3) Alt Energy -.60%

Stocks Falling on Unusual Volume:

• CSC, NILE, PAAS, AAPL, BBBY, WYNN, SSRI, SKM, WNR, VIV, OPNT, PEGA, TTWO, GMCR, INTX, PSMT, DGIT, PERY, LQDT, SODA, LGND, GIII, LORL, DMND, JOYG, OMG, MFB, HFC and OPNT
  

Stocks With Unusual Put Option Activity:

• 1) RSX 2) UAL 3) CS 4) CHK 5) GMCR
  

Stocks With Most Negative News Mentions:

• 1) WEN 2) CSC 3) SD 4) NOG 5) AAPL
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Small-Cap Growth (+.58%)

Sector Outperformers:

• 1) Oil Tankers +2.79% 2) Homebuilding +1.77% 3) Networking +1.56%

Stocks Rising on Unusual Volume:

• CSCO, MRK, SFLY, VRTX, ENS, OSG, AAP, FL, BKS and HOS
  

Stocks With Unusual Call Option Activity:

• 1) BKS 2) VIA/B 3) PWER 4) NXPI 5) MPEL
  

Stocks With Most Positive News Mentions:

• 1) ABC 2) REGN 3) CSCO 4) S 5) MRK
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Thursday Watch

Evening Headlines

Bloomberg:

• Too Big to Rescue Italy Forces EMU to Crossroads: Euro Credit. Italy is forcing Europe to choose between increased bond buying by the European Central Bank or a possible breakup of the euro. Italian 10-year yields have breached the 7 percent level that locked Greece, Portugal and Ireland out of the capital markets and forced them to seek aid. With debt of 1.9 trillion euros ($2.6 trillion), more than those three countries combined, Italy has to refinance about 200 billion euros of maturing bonds next year and more than 100 billion euros of bills. The future of the European monetary union is at stake after bond vigilantes claimed their fifth political scalp by driving Italy's borrowing costs to records, prompting Prime Minister Silvio Berlusconi to offer his resignation. ECB member Jens Weidmann said Nov. 8 his institution cannot print money to bail out governments. "There is now a full-scale run on the world's third- largest bond market," said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London. "If Italy fails, the euro zone fails. The worse things get in Italy, the greater the pressure on the ECB to intervene on a massive scale." German Finance Minister Wolfgang Schaeuble told lawmakers that Italy should request aid from the European Financial Stability Facility if it needs it, said two people who were present at a private budget meeting yesterday in Berlin. Investors demand a premium of more than 550 basis points to lend to Italy for 10 years rather than Germany, more than double the average gap of the past year. Credit-default swaps on Italy jumped 38 basis points to 562, surpassing the previous record of 534 set Sept. 22, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 13 basis points to a one-month high of 341.
• Merkel's Party May Adopt Euro-Exit Clause in Platform, CDU's Barthle Says. German Chancellor Angela Merkel’s Christian Democratic Union may adopt a motion at an annual party congress next week to allow euro members to exit the currency area, a senior CDU lawmaker said. A motion that proposes allowing a euro member that doesn’t want to or is unable to comply with the common currency rules to leave the euro without losing membership in the European Union has been accepted by the party for debate at the CDU’s annual congress, Norbert Barthle, the ranking CDU member of parliament’s budget committee, said in a phone interview in Berlin. It probably has enough support to be passed by delegates at their meeting in the eastern German city of Leipzig on Nov. 14-15, he said. “This motion will go through, I am sure of it,” Barthle said late yesterday. “Any country that wants to leave the euro on its own should not be prevented from doing so.” Any German move to allow a state to exit the currency area, which is not envisaged under current euro rules, would require changes to the bloc’s guiding treaty to come into force. That can only happen with the backing of Germany’s EU partners. “It will become part of our party platform for future policy with regard to amending the framework treaties of the euro,” Barthle said. To become government policy, it would have to be agreed by all three parties in Merkel’s coalition and may need opposition support in a full parliamentary vote.
• Derivatives Erase October Optimism on Stresses: Credit Markets. October's optimism that Europe would solve its sovereign-debt crisis has evaporated in the bond market. Credit-default swaps tied to an index of European banks from Italy's UniCredit SpA to London-based HSBC Holdings PLC are at the highest level since Oct. 5. In the U.S., a benchmark index of the cost to protect corporate debentures from losses rose the most in almost seven weeks. Interest-rate swap spreads, a gauge of stress in credit markets, are the widest in 17 months.
• Derivatives Signal Bank Funding Pressures to Rise on Europe Debt. Derivative traders are wagering that U.S. and European banks' willingness to lend will ebb as financial institutions further shore up balance sheets amid signs the euro-zone debt crisis is worsening. The difference, or spread, between the dollar London interbank offered rate and the overnight index swap rate projected by contracts trading in the forward market rose yesterday to 56 basis points, the wides since June 2010, according to UBS AG data. The FRA/OIS spread for the March to June 2012 period projects a widening of nearly 20 basis points in the current spot dollar Libor-OIS spread, which is an indirect measure of the availability of funds in the money market and of banks' willingness to lend.
• Euro Trades Near One-Month Low Before Italy Tests Demand at Bill Auction. The euro traded 0.2 percent from its lowest level in a month before Italy sells 5 billion euros ($6.8 billion) of one-year bills today, testing investor appetite after borrowing costs surged to euro-era records. The 17-nation currency touched a two-week low against the yen after Italian yields yesterday climbed above 7 percent, the level at which Greece, Ireland and Portugal sought international bailouts. Italy will sell five-year debt on Nov. 14. New Zealand’s currency weakened for a third day versus the yen as Asian stocks dropped. Australia’s dollar pared declines after the unemployment rate fell as energy companies ramped up hiring. “The success of those auctions will be crucial to the near-term direction in euro,” said Richard Grace, the Sydney- based chief foreign-exchange strategist and head of international economics at Commonwealth Bank of Australia. “The risk is euro goes lower. The low $1.30s is certainly a risk over the next week or so.”
• China Exports Slow as Europe Dims Outlook. China’s exports rose at the slowest pace in almost two years in October as Europe’s deepening debt crisis crimped demand, adding pressure on policy makers to support growth in the world’s second-biggest economy.
• Solar Glut to Worsen After Prices Plunge 93% on Rising Supply: Commodities. The cost of solar cells and microchips has nowhere to go but down because of a supply glut for the commodity they’re made from, a brittle charcoal-colored semiconductor baked in ovens at 600 degrees centigrade. Polysilicon has plunged 93 percent to $33 a kilogram from $475 three years ago as the top five producers more than doubled output, data compiled by Bloomberg shows. The industry next year will produce 28 percent more of the raw material than will be consumed, up from 20 percent this year, said Robert Schramm- Fuchs and Shai Hill, analysts at Macquarie Group Ltd. “Polysilicon is a grossly, grossly, grossly oversupplied commodity product,” said Paul Leming, director of research at Ticonderoga Securities in New York. “We’re staring at years of stability where polysilicon pricing sits at something approaching cost of production and doesn’t move.”
• CMBS Sales Seen Little Changed in 2012 as Lenders Cut Back. Sales of commercial mortgage-backed securities aren’t likely to increase much next year as borrowing costs remain high and lenders back off making new loans, according to CMBS executives. “The Street’s not really taking risk, they’re very concerned,” Steven Schwartz, managing director of loan acquisitions for Torchlight Investors, said at the Bloomberg Commercial Real Estate Summit in New York. “The first quarter’s going to be grim.” Europe’s fiscal crisis has roiled credit markets since July, causing gyrations in the value of securities tied to shopping malls, skyscrapers and hotels and leading to a pullback in loan originations. CMBS issuance in the U.S. has totaled about $26 billion this year. While that’s up from $11.5 billion in 2010, it’s a fraction of the record of more than $200 billion in 2007 when commercial real estate peaked, according to data compiled by Bloomberg.
• Syria Violence May Trigger Libya-Like Civil War, UN Predicts. Syria is at risk of becoming like Libya, where an uprising against a long-standing dictator unleashed a civil war, the United Nations human rights chief predicted. “It happened in Libya; it may happen in Syria,” UN High Commissioner for Human Rights Navi Pillay told the Security Council today in New York. “More and more soldiers refuse to become complicit in international crimes and are changing sides.”
• Japan Machine Orders Fell More Than Forecast in September. Japan’s machinery orders fell more than forecast in September, indicating that companies may hold off on outlays on concern a global slowdown and a strong yen will hurt business. Bookings, an indicator of future capital spending, fell 8.2 percent in September from August, the Cabinet Office said in Tokyo today. The median forecast of 29 economists surveyed by Bloomberg News was for a 7.1 percent fall.
• APEC Finance Officials Concerned by Impact of Europe Debt Crisis on Region. Deputy finance ministers meeting at the Asia-Pacific Economic Cooperation forum in Honolulu expressed concern over the danger posed by contagion from Europe for a global economy still recovering from the 2008 financial crisis.

Wall Street Journal:

• Italy Fears Rattle World's Investors. Markets in U.S. and Europe Drop as Turmoil Fuels Fears Crisis Could Ricochet Across Atlantic, Endanger Common Currency.
• Paterno Ousted at Penn State. In its fifth day, the metastasizing scandal at Pennsylvania State University ended the career of Joe Paterno—the longest-tenured coach in major-college football—and resulted in the ouster of the university's president. After an emergency meeting Wednesday evening, the school's Board of Trustees announced at a news conference that they had dismissed Mr. Paterno and Graham Spanier, the school's president for the past 16 years.
• Sprint Stalks Free Growth. Brenda Parker lives in government housing, can't work because of chronic medical problems and depends on federal disability checks. She is just the kind of customer Sprint Nextel Corp. is looking for. Ms. Parker, of Shallotte, N.C., is one of millions of low-income Americans who get 250 minutes a month of free cellphone service through a little-known government subsidy program called Lifeline. The program, funded by charges levied on cellphone bills nationwide, pays carriers such as Sprint as much as $10 a month per customer to be used toward a free or discounted wireless plan.
• Hedge Funds Getting Queasy On Wild Market Ride. Just when some managers thought it was getting safe to re-enter and start buying stocks again, events in Europe have overwhelmed the markets, especially on Wednesday. “This market is like Chinese water torture – managers are reaching exhaustion point in this guessing game,” said Vidak Radonjic, of The Beryl Consulting Group LLC, which advises investors on hedge funds.
• Farmer Mac Swings To 3Q Loss, Stung By Derivatives. Federal Agricultural Mortgage Corp. (AGM), commonly known as Farmer Mac, swung to a third-quarter loss as write-downs on derivatives weighed down the bottom line, masking a stronger core profit from improving interest income.
• Bank Quandary: Valuing the Assets. Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS), which became bank-holding companies to help them survive the financial crisis, are considering an accounting change that would make them look even more like a traditional bank. The two firms are discussing whether to reduce their use of mark-to-market accounting, in which companies immediately take profits or losses as asset values fluctuate, according to people familiar with the situation. Such swings routinely affect the bottom line at Goldman and Morgan Stanley, including in the third quarter.
• Nations Diverge on Pressing Iran. The U.S. and its European allies struggled to present a unified international stance against Iran a day after the United Nations' nuclear agency said it had uncovered extensive evidence that Tehran has been developing the technologies needed to produce nuclear weapons. Russia on Wednesday formally vowed to block any move at the U.N. Security Council to impose new sanctions against Iran, saying it wasn't convinced by the new intelligence presented by the International Atomic Energy Agency on Tuesday. China called for the IAEA to be "objective" in its work.

Business Insider:

• Mayhem at Penn State: Students Pour Into Streets As Riot Fears Grow. (pics) Angry Penn State students are back in the streets tonight after Joe Paterno was abruptly fired by the board of trustees. CNN is on the ground, and the situation is really tense right now. We'll update you here with pictures, video, and any news from State College.
• Jefferson County Just Filed For The Largest Municipal Bankruptcy In U.S. History. Commissioners of Jefferson County, Alabama, voted today to file for the largest-ever municipal bankruptcy today, ending nearly three years of drama over the county's $3.1 billion sewer debt. The decision comes less than two months after the county reached a provisional agreement with its creditors, that included $1.1 billion in concessions. But county officials have been unable to get signed commitments from its creditors before today's vote, according to Bloomberg.
  

Zero Hedge:

• Short Interest Plunges, YTD Equity Fund Outflows Hit $112 Billion. (graph)
• Get Ready to Start Paying These Taxes Too.
  

CNBC:

• Debate Recap: Economy Can Thrive With Less Government. Herman Cain swatted away character issues, Rick Perry couldn't remember which federal agencies he wants to eliminate, and a still-crowded field of Republican candidates agreed that the way to save the government is by shrinking it.
• ECB's Stark to Europe: We Are Not 'Lender of Last Resort'. European Central Bank policymaker Juergen Stark warned European governments on Wednesday against asking the ECB for support in dealing with the region's sovereign debt crisis, saying this would put the central bank's independence at risk.

NY Times:

• Euro Fears Spread to Italy as the Debt Crisis Deepens. Since the start of the euro crisis two years ago, the big fear has been contagion, that market unease about the high debt and slow growth in Europe’s southern rim would infect the core. On Wednesday, contagion arrived with brute force.
• Clients Question Oversight by MF Global's Regulator.
  

Rasmussen Reports:

• 17% Say U.S. Heading In Right Direction.

Reuters:

• Green Mountain(GMCR) Sales Miss Raises Growth Fears. Green Mountain Coffee Roasters' weak quarterly revenue raised fears about the company's growth potential, as sales of its Keurig coffee makers did not rise as much as Wall Street had expected, sending its shares down 34 percent.
• Republican Candidates: No U.S. Bailout of Europe. Leading Republican candidates for the U.S. presidency said on Wednesday the United States should stay out of the financial problems in Europe and resist any calls for direct infusions of cash.
• Cisco(CSCO) Q2 Beats Cautious Street View. Cisco Systems Inc forecast revenue and earnings above Wall Street expectations as demand from government and enterprises for its network equipment remained resilient despite global economic troubles. Analysts had expected conservative quarterly guidance, given the economic uncertainty.
• US May Delay Pipeline Decision Past 2012 Election. The United States may choose to reroute a proposed Canada-to-Texas oil pipeline, a move that could defer a decision on approving the politically charged project beyond the 2012 U.S. election, a U.S. official said on Wednesday.

Financial Times:

• Subprime Loans Come Back to Haunt HSBC. For a bank that is keen to trumpet its global footprint at every opportunity, HSBC is struggling to shake-off one very parochial issue. Almost three years after it began to wind down its US consumer finance business, the bank is facing another severe bout of losses linked to subprime mortgages in the country.

Telegraph:

• Europe Pushes Italy Into The Abyss. It has taken three trading days since the failure of the G20 summit to detonate the explosive charge on Italy's €1.9 trillion (£1.6 trillion) bond market, the world's third-largest stock of public debt. Europe's purported "firewall" to safeguard Italy does not, in fact, exist. The EU's vague plans to leverage its EFSF rescue fund to €1 trillion have come to nothing. Investors could see at once that plans to use the fund as a "first loss" bond insurer concentrates risk, dooming France's AAA rating and accelerating contagion to the core. The European Central Bank (ECB) has been buying Italian bonds, but too slowly to stop the debt spiral. The ECB's new chief, Mario Draghi, kicked off his term with a blunt warning that it would be "pointless" for the bank to try to cap the yields of struggling debtors for long. It was an invitation for frightened investors to dump their bonds. With almost nothing in place to halt contagion, the market verdict has been swift and brutal. Capital Economics said "the Rubicon may have been crossed" after yields on 10-year Italian bonds smashed through 7pc on Wednesday.

Kleine Zeitung:

• Standard & Poor's Ratings Service may comment next week about Austria's AAA debt rating, and officials are worried it may change the rating outlook to "negative". S&P may comment as soon as Nov. 15.

Sankei:

• Iran and North Korea jointly operate three nuclear research institutes beneath Iranian military facilities, citing a person familiar with the matter. About 10 North Korean scientists visited the research centers this year to help Iran develop nuclear weapons.

liveMint.com:

• Mercedes, BMW May Miss Their Yearly Targets In India. Demand for premium cars contracted 11% between April and Oct, says SIAM; dealers turn to discounts.

Hong Kong Economic Journal:

• More Chinese companies may delist in the U.S because of close scrutiny by regulators there, citing Terence Ho, a partner at Ernst & Young LLP. Chinese companies that listed by means of reverse takeover face "confidence risk".
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -4.0% to -1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 215.50 +22.0 basis points.
  
• Asia Pacific Sovereign CDS Index 155.25 +7.0 basis points.
• FTSE-100 futures -1.41%.
  
• S&P 500 futures +.28%.
  
• NASDAQ 100 futures +.32%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FLO)/.23
• (KSS)/.79
• (VIA/B)/1.02
• (JWN)/.59
• (DIS)/.54
• (NVDA)/.31
• (MCP)/.68
• (KLIC)/.26

Economic Releases
8:30 am EST

• The Import Price Index for October is estimated unch. versus a +.3% gain in September.
• The Trade Deficit for September is estimated to widen to -$46.0B versus -$45.6B in August.
• Initial Jobless Claims are estimated to rise to 400K versus 397K the prior week.
• Continuing Claims are estimated to fall to 3680K versus 3683K prior.
  

2:00 pm EST

• The Monthly Budget Deficit for October is estimated at -$102.5B versus -$140.4B.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Lockhart speaking, Fed's Evans speaking, BoE Rate Decision, 30-Year Treasury Bond Auction, ECB's Stark speaking, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, Deutsche Bank Hospitality/Gaming Conference, Sidoti Emerging Growth Forum, BMO Digital Entertainment Conference, RBC Gold Conference, Suntrust Government Services Conference and the (BX) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.