Bloomberg:
- Metro Cuts Profit Forecast as Europe Slowdown Hurts Sales. Metro
AG (MEO), Germany’s biggest retailer, cut its 2012 profit forecast,
saying Europe’s sovereign-debt crisis is weighing on sales in the south
and east of the region. Earnings before interest and taxes will
decline to about 2 billion euros ($2.6 billion) in 2012, the
Dusseldorf-based retailer said in a statement today. It had previously
forecast earnings would be about the same as 2011’s 2.37 billion euros.
The shares fell the most in about 10 months. “The European consumer environment has worsened further in
recent weeks against the backdrop of rising unemployment, which
has hit a new record high in the euro zone,” said the company,
which owns Media Markt electronics stores. “This has also
started to materially affect Metro Group’s business development,
especially in southern Europe and parts of eastern Europe.”
- Spain Deterred From Bailout Request as EU Questions Deficit Plan. Spain has been deterred from triggering the currency union’s rescue mechanisms because of concerns about how, and even whether, the process would work, Deputy Prime Minister Soraya Saenz de Santamaria said today. “We need to have all the elements on the table and also the certainty that it would materialize” before making a bailout request, Saenz said at press conference in Madrid following the government’s weekly Cabinet meeting. Her comments help explain why Spanish officials have sought to damp expectations of a bailout request amid rising criticism of their plans to tame the budget deficit. Prime Minister Mariano Rajoy has said he is considering a request for European Union bond buying to try to bring down borrowing costs that remain more than 100 basis points above their average for the last decade. EU deficit enforcer Olli Rehn and Spanish central bank governor Luis Maria Linde this week both questioned the math that the government says will deliver the country’s deficit- reduction commitments over the next 15 months. Spain’s high funding costs are complicating the debt-reduction effort. “There is a rising fear that the 2013 budget and the stress tests may have been some sort of window dressing to get European assistance,” Thomas Costerg, an economist at Standard Chartered Bank in London, said yesterday by e-mail.
- Merkel’s First Greek Crisis Visit May Mark Turning Point. German
Chancellor Angela Merkel will travel to Athens for the first time since
Europe’s financial crisis broke out there three years ago, a sign
she’s seeking to silence the debate on pushing Greece out of the euro.
Merkel’s visit to the Greek capital Oct. 9 to meet with
Prime Minister Antonis Samaras underscores the shift in her
stance since she held out the prospect last year of Greece
exiting the 17-nation currency regime.
- Al-Qaeda Affiliates Getting Stronger, Says U.S. Official. Terrorist groups in Mali and Yemen
that are affiliated with al-Qaeda are “gaining strength,” in
large part by taking hostages for ransom, a senior U.S. Treasury
official said today. “The U.S. government estimates that terrorist
organizations have collected approximately $120 million in
ransom payments over the past eight years,” said Deputy
Treasury Secretary David Cohen in a speech to the Royal
Institute of International Affairs at Chatham House in London. U.S. intelligence officials are investigating whether the
two main groups Cohen cited, al-Qaeda in the Islamic Maghreb and
al-Qaeda in the Arabian Peninsula, may have played a role in the
Sept. 11 attack on a U.S. diplomatic post in Benghazi, Libya,
that killed Christopher Stevens, the American ambassador to
Libya, and three other Americans.
- India’s NSE Says 59 Erroneous Orders Caused Index Plunge. The
National Stock Exchange of India said 59 erroneous orders prompted a
plunge in equities that briefly erased about $58 billion in value,
underscoring growing global concern about the integrity of financial
markets. Trading in the S&P CNX Nifty (NIFTY) Index and some
individual companies stopped at 9:49 a.m. in Mumbai for 15 minutes
after the 50-stock gauge tumbled as much as 16 percent. The volume of
stocks in the benchmark index that were traded today almost doubled from
the 100-day average, according to data compiled by Bloomberg. An index
of Indian stocks traded in New York slipped
as much as 1 percent.
- Food Prices May Stay High in Next Six Months on Drought: FAO. Global
food prices will probably stay
high in the next six months after drought in the U.S. and Russia
cut grain supplies, said the United Nations. The global market “will
switch to a short supply mode” for the first time in two years, said
Hiroyuki Konuma, the regional representative for Asia and Pacific at
the UN’s Food & Agriculture Organization. “We will have to monitor
it very
cautiously,” he said in a phone interview on Oct. 3.
- Oil Heads for Third Weekly Drop on Supply/Demand Worries. Futures are set to cap the longest run of weekly decreases
since June after the Energy Department reported on Oct. 3 that
U.S. crude output rose to 6.52 million barrels a day last week,
the most since December 1996. Crude oil for November delivery fell $2.18, or 2.4 percent,
to $89.53 a barrel at 1:49 p.m. on the New York Mercantile
Exchange. The contract dropped as low as $89.01. Prices are down 2.9 percent this week. Brent oil for November settlement slipped 95 cents, or 0.8 percent, to $111.63 a barrel on the London-based ICE Futures Europe exchange.
MarketWatch.com:
- Brace for worst earnings since recession rebound. S&P 500 firms slated to report earnings drop; low-balling is typical. This earnings season threatens to be one of the
roughest since U.S. companies started to pull themselves out of the
Great Recession — even if, as usual, results don’t live up to the worst
of the gloom-and-doom forecasts.
Revenue streams are drying up as China’s growth slows and Europe reels
from crisis to crisis. Companies are finding fewer places to cut costs.
- QE3 was a sign of failure. When Federal Reserve Chairman Ben Bernanke announced a new round of
unconventional monetary stimulus last month, he couched it in the
language of grim necessity, saying:
CNBC:
Zero Hedge:
Business Insider:
24/7 Wall St.:
- Federal Employment Set to Tumble Off Fiscal Cliff. About 14% of the total federal government workforce could lose their jobs if U.S. lawmakers cannot figure out a
way to avoid the looming fiscal cliff. That’s 277,000 non-military jobs,
of which 48,000 would be lost to civilian defense workers and 229,000
would be lost to non-defense workers.
DailyFX:
- Decline in German Factory Orders Dissapoints Expectations. German manufacturing orders dropped by 1.3% in
August (seasonally adjusted), disappointing expectations for a 0.5%
drop, and a reverse from July’s revised 0.3% rise in factory orders.
Manufacturing orders were 4.8% less than August 2011, according to the
Economy Ministry.
HedgeEye.com:
Reuters:
- US stuck with 'extraordinary' level of vacant homes-Fed's Duke. The U.S. housing bust has
saddled the country with an "extraordinary" level of abandoned
properties, inflicting heavy costs on the wider community which
may warrant government aid to ease the problem, a top U.S.
central banker said on Friday. "In order to see the robust economic recovery we all want,
we need to deal effectively with the large volume of
vacant and distressed properties throughout the country," said
Federal Reserve Board Governor Elizabeth Duke.
- VW cuts output target, halts German Passat plant. Volkswagen
halted production in Germany of its Passat cars this week as part of a
wider move to cut its group output target for the year by about 300,000
vehicles because of the
European market slump, company sources said. The global production target for the VW group, which
includes luxury division Audi, has been cut to 9.4 million cars
this year, up on last year's output of 8.5 million but short of
the goal originally set for this year of about 9.7 million, the
sources said on Friday.
- California gasoline prices jump 17 cents a gallon overnight. California gas prices rose
17 cents a gallon overnight due to supply disruptions at some
refineries and seasonally low inventories, bringing the one-week
increase in the Golden State to nearly 36 cents. The average retail price of gasoline was $4.486 on Friday
morning, up from $4.315 on Thursday and $4.131 a week ago,
according to AAA data. The average price was $3.818 a year ago. The average price is just 12 cents below the highest
recorded statewide price of $4.61, which was reached in June of
2008. "It's insane," said Matt Hurd, 35, who works in real estate.
"Especially with this thing," he added, motioning toward his
white SUV. "It's going to cost triple digits to fill it up."
Handelsblatt:
- IMF
Reduces German Economic Growth Forecast. The IMF expects the German
economy to grow .9% each year in 2012 and 2013, lower than the
respective 1% and 1.4% rates forecast in July, citing the fund's World
Economic Outlook to be published Oct. 9.
Style Underperformer:
Sector Underperformer:
- 1) HMOs -1.0% 2) Coal -.90% 3) Software -.70%
Stocks Faling on Unusual Volume:
- FFIV,
AAPL, MRCY, SABA, SPSC, WLP, TM, IQNT, FSLR, IMOS, MBT, MVO,
SRPT, NUVA, ASPS, LQDT, PNRA, MAR, BRLI, CMG, FTK, IMOS, CAKE, BJRI,
CHUY, CTXS, SPLK, INFY, CALM, GMCR, PRXL, EZA and MDCO
Stocks With Unusual Put Option Activity:
- 1) XLY 2) RSX 3) ZNGA 4) FSLR 5) EWA
Stocks With Most Negative News Mentions:
- 1) MRCY 2) CAKE 3) MAR 4) BHI 5) EBAY
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Homebuilding +1.65% 2) Education +1.49% 3) Airlines +1.09%
Stocks Rising on Unusual Volume:
- TQNT, SAND, ALJ, ETP, INFA, PAY, AVP, OI, STZ and PBY
Stocks With Unusual Call Option Activity:
- 1) LINE 2) OCN 3) AVP 4) VRNG 5) ACAD
Stocks With Most Positive News Mentions:
- 1) OI 2) TMO 3) STZ 4) LMT 5) XOM
Charts:
Evening Headlines
Bloomberg:
- Draghi Says Next Move Not His as Spain Resists Bailout.
European Central Bank President Mario Draghi signaled European
governments can’t expect much more help from him until they make the
next move. Draghi said nine times during a 54-minute press conference in
Slovenia yesterday that the ECB won’t start intervening in bond markets
until governments like Spain request a bailout and agree to conditions.
He also ruled out allowing the ECB to take losses in any further Greek
debt restructuring and damped speculation of another ECB interest-rate
cut. “Draghi’s message to governments was that he’s not going to do
any more for the time being,” said Jacques Cailloux, chief European
economist at Nomura International Plc in London. “The ECB is ready, if
needed, but their preference is probably
not to have to intervene at all.”
- EU Doubts on Deficit Cutting May Hinder Spain’s Path to Bailout. European
officials’ concern over’s Spain’s ability to reach its 2013
deficit-reduction target may obstruct Prime Minister Mariano Rajoy’s
path toward a possible bailout. Olli Rehn, the European commissioner in
charge of policing budget rules, told Spanish officials their plans to
reduce the shortfall to 4.5 percent of gross domestic product next year
are based on excessively optimistic assumptions about economic growth,
two people familiar with the issue said. Central bank governor Luis
Maria Linde, who met Rehn on his Oct. 1 visit to Madrid, echoed that
view in comments to lawmakers yesterday. There’s “a potential slowdown
in Spain’s application for a European program,” Thomas Costerg, an
economist at Standard Chartered Bank in London, said yesterday by
e-mail. “There is a rising fear that the 2013 budget
and the stress tests may have been some sort of window dressing to get
European assistance.”
- Spain Sees Divorce Driving Breakup of Towns as Recession Deepens.
At 10 a.m. on a hot Friday, Antonio Rodriguez Alvarez and his brother,
Francisco, sit outside a bar in Ecija, Spain, drinking an anise liquor
with water. Unemployed laborers, they visit the job center daily at 9
a.m. in search of work. When there is none, they repair to the bar and
worry. Antonio, 44, is divorced and living with his mother. He split
with his wife partly because of constant fights about money and his lack
of a job. He now weighs going to France, where he heard there is work
picking fruit. His 22-year-old daughter is planning a move to the Canary
Islands to work in the tourism industry. He said he doesn’t blame her. “Young people are leaving this town,” he said. “There’s no hope, no jobs. Days are long. You wake up, it’s the crisis.
You go to bed, it’s the crisis. It’s always the same around
here.”
- Bullard Says Investors Doubt Fed to Hold Inflation to 2%. Federal Reserve Bank of St. Louis
President James Bullard said measures of inflation expectations
indicate bond holders have doubts the central bank will hold
price increases within its 2 percent goal. “Distant inflation expectations
from the TIPS market seem to suggest that investors do not completely
trust the Fed to deliver on its 2 percent inflation target,” Bullard
said today in a speech in Memphis, Tennessee, referring to Treasury
Inflation-Protected Securities. Bullard’s comments echoed Dallas Fed
President Richard Fisher’s concern about rising expectations following
the Federal Open Market Committee’s decision last month to start an
asset purchase program. Policy makers said they could change the size of
the central bank’s monthly asset purchases to reduce any risks from the
program, including higher inflation or a disruption to financial
markets, according to minutes of the Sept. 12-13 meeting released today.
The five-year, five-year forward break-even rate, which projects the
pace of price increases starting in 2017, rose to 2.88 percent on Sept.
14, the day after the FOMC announced a third round of quantitative
easing. That was up half a percentage point from July 26. It dropped to
2.77 percent on Oct. 2. Bullard, who doesn’t vote on monetary policy
this year, said inflation “is sometimes seen as a way to partially
default on existing nominal debts,” and said that approach would hurt
savers, mostly older U.S. households, in his prepared remarks to the Economic Club of Memphis. “A partial default today through higher inflation would be
paid for via higher inflation premiums in future borrowing,” he
said. “This type of policy would likely impair U.S. credit
markets for many years.”
- Mazda China Sales Tumble to 19-Month Low on Anti-Japan Protests.
Mazda Motor Corp. (7261)’s deliveries in China tumbled to the lowest in
19 months as anti-Japan protests flared in the world’s largest vehicle
market, fueling concern larger automakers such as Toyota (7203) Motor
Corp. will follow suit. Mazda saw deliveries in China drop 35 percent to 13,258 vehicles last month,
the automaker said on its website yesterday. That’s the fewest
deliveries since February 2011, meaning the company couldn’t even match
its sales during the aftermath of last year’s earthquake-triggered
tsunami in Japan and floods in Thailand.
- California Refiners Ration Gasoline as Prices Near Record.
Exxon Mobil Corp. (XOM) and Valero Energy Corp. (VLO) are rationing
fuel deliveries to customers in California as refinery outages cut into
the state’s supplies, driving pump prices toward record highs. Valero
halted spot sales of gasoline in Southern California
and is allocating the rest of deliveries to customers. Exxon is
also rationing fuel to customers at West Coast terminals. Retail
prices in California jumped to $4.315 a gallon Oct. 3, according
to AAA, the nation’s biggest motoring organization. The shortage caused Los Angeles-area gasoline station
owners, including Costco Wholesale Corp., to run out of
supplies, shut pumps and, in some cases, charge their highest
prices ever. Spot gasoline in California, already home to some
of the most expensive fuel in the nation because of state
blending requirements, has surged $1 a gallon this week to a
record. “We’re really sort of shell-shocked,” said Tom Robinson,
president of Santa Clara, California-based Robinson Oil Corp.,
which operates 34 Rotten Robbie convenience stores. “If you’ve
been in California long enough, you know how volatile our market
can be. But to see prices go up $1 a gallon since Monday -- I’ve
never seen that before.”
- Zynga(ZNGA) Cuts Bookings Forecast, Citing Diminished Game Demand. Zynga Inc. cut its forecast for full-
year bookings, a predictor of sales, citing lower demand for Web
games such as “The Ville” and delayed introduction of other
titles. Shares tumbled as much as 22 percent. Bookings this year will be $1.085 billion to $1.1 billion,
compared with an earlier forecast for $1.15 billion to $1.225
billion, San Francisco-based Zynga said today in a statement.
The company also wrote down the value of its acquisition of
OMGPop Inc., maker of the “Draw Something” game, and sliced
its forecast for a closely watched measure of profitability.
- Gold Traders More Bullish as Holdings Reach Record: Commodities.
Gold traders are the most bullish in three weeks as investors’ bullion
holdings expanded to a record after central banks pledged to do more to
spur economic growth. Twenty of 32 analysts surveyed by Bloomberg
expect prices to rise next week, nine were bearish and three were
neutral. Investors are holding the most metal ever through gold-backed
exchange-traded products after buying 85.4 metric tons last month, the
most since July 2011. Hedge funds’ bets on a rally
are the biggest in seven months, U.S. Commodity Futures Trading
Commission data show.
Wall Street Journal:
- FBI Team Reaches Libya Attack Site. Federal Bureau of Investigation agents visited the burned-out U.S.
Consulate in Benghazi for the first time on Thursday, more than three
weeks after Ambassador to Libya Christopher Stevens and three other
Americans were killed in an attack there on Sept. 11. The
agents collected evidence for about 12 hours with protection from U.S.
military personnel and perimeter security from Libyan personnel, then
left the city because of security concerns, officials said; the visit
was kept secret to avoid any strike by militants while agents were
there.
- Turkey Strikes Syria, Adds War Powers. Syria Accuses Neighbor of Fueling Conflict As Ankara Shells Positions for Second Day.
Turkey attacked targets inside Syria for a second day Thursday and
its parliament authorized military offensives into foreign countries,
deepening the threat of sustained conflict along the neighbors' 565-mile
common border. Syria, at the United Nations, castigated its neighbor
for policies it said were fueling the conflict. Ankara's military and
legislative moves came a day after Syrian shells
landed in the Turkish border town of Akcakale, killing five people and
spurring Turkish retaliatory strikes.
- Natural Gas Glut Pushes Exports.
- Investors Jump Off the 'Junk' Pile. The massive "junk"-bond boom is raising alarm bells among some large
money managers, who warn the market is showing signs of overheating. So much money has flooded into the junk-bond market from yield-hungry
investors that weaker and weaker companies are able to sell bonds, they
say. Credit ratings of many borrowers are lower and debt levels are
higher, making defaults more likely. And with yields near record lows,
they add, investors aren't being compensated for that risk. Also worrying money managers is that some new sales have similar hallmarks to those that preceded the financial crisis in 2008.
- Foreign Firms Flood Into U.S. Debt Market. "Go Yankees" isn't just an October refrain in baseball. Foreign
borrowers' U.S. dollar-denominated debt, or "Yankee bonds," are offering
investors a chance to pick up higher yields and diversify their
portfolios. Banks in Spain and France, plus corporate borrowers
in Chile, Russia and the U.K., all brought bonds to market Thursday,
selling at least $8.15 billion combined. The internationalization of the
U.S. bond market means investors can diversify portfolios without
having to take on much currency risk. And often, foreign companies offer
higher yields than U.S. counterparts.
- Higgins and Heath: Informed Independents Cool to ObamaCare. Presenting facts about even popular aspects of the health-care law had a side effect: increasing support for Mitt Romney.
- The Obama Matrix. Romney's triumph came from exposing the President's campaign illusions.
Fox News:
- Exclusive: Credit Suisse probed by U.S. over mortgages - sources. U.S. federal and state authorities are investigating Credit Suisse AG
over mortgage-backed securities packaged and sold by the bank, people
familiar with the probe said on Thursday. The Justice
Department and the New York Attorney General are among those probing
Credit Suisse's actions, according to the sources, who spoke on
condition of anonymity.
Zero Hedge:
Business Insider:
NY Times:
- Glut of Solar Panels Poses a New Threat to China. China in recent years established global dominance in renewable energy,
its solar panel and wind turbine factories forcing many foreign rivals
out of business and its policy makers hailed by environmentalists around
the world as visionaries. But now China’s strategy is in disarray.
Though worldwide demand for solar panels and wind turbines has grown
rapidly over the last five years, China’s manufacturing capacity has soared even faster, creating enormous oversupply and a
ferocious price war.
LA Times:
- LAPD stance on illegal immigration puts Chief Beck in hot seat. Los Angeles Police Chief Charlie Beck stepped into the national
immigration debate Thursday, announcing that hundreds of illegal
immigrants arrested by his officers each year in low-level crimes would
no longer be turned over to federal authorities for deportation. The new rules, which are expected to affect about 400 people arrested
each year, mark a dramatic attempt by the nation's second-largest
police department to distance itself from federal immigration policies
that Beck says are unfair to undocumented immigrants suspected of
committing petty offenses.
CNN:
- Work from home soars 41% in 10 years.
The number of Americans working from home has soared 41% in the last
decade. About 13.4 million people currently work from home in the United
States, according to a Census Bureau report out Thursday. That's about
four million more Americans since 1999.
Reuters:
- Actress Daryl Hannah arrested in Keystone pipeline protest. Actress Daryl Hannah was
arrested in Texas on Thursday after she stood in front of an
earth-moving machine clearing ground for the construction of the
controversial Keystone XL pipeline, her representative said. The protest took place outside Winnsboro, Texas, about 80
miles (130 km) east of Dallas, said Hannah's agent, Paul Bassis. Hannah, 51, a longtime environmental activist, was arrested
last year outside the White House in another protest against the
pipeline. The Keystone XL pipeline, a project of TransCanada
Corp, would ship more than half a million barrels a day
of oil sands-derived crude to the Texas Gulf Coast from Canada.
- Facebook(FB) IPO lawsuits to be heard in New York. Dozens of lawsuits against Facebook Inc
, the NASDAQ exchange and various underwriters
will be consolidated before a federal judge in New York, who
must sort through the legal aftermath of Facebook's botched
initial public offering.
- Obama-Romney debate draws 67.2 million TV viewers. More than 67 million
Americans tuned in to Wednesday's first presidential debate
between President Barack Obama and Mitt Romney, ranking the
match-up among the top 10 of the past 30 years. Final Nielsen data on Thursday showed that 67.2 million
people across 11 TV networks watched Obama and Romney go head to
head on the economy - a 28 percent increase on the 52.4 million
who saw the first 2008 debate between Obama and Republican John
McCain.
Financial Times:
- Morgan Stanley(MS) chief warns on Wall St pay. Morgan Stanley is
preparing to wield its axe again with more job cuts and smaller bonuses
planned for next year as the investment bank attempts to boost
shareholder returns. In the latest sign of the pressure Wall Street is under to cut costs
and address high pay levels, James Gorman, chief executive, said that
staff and remuneration would have to be sacrificed as banks cope with
lower profits.
Telegraph:
Les Echos:
- France's
INSEE Sees No Pickup in Economy Through Year End. Institut de la
Statistique et des Etudes Economiques said 2H growth will be +.2% GDP,
down from +.4% forecast in June. INSEE forecasts unemployment will reach
10.2% by year end, 10.6% including overseas territories. French
purchasing power will drop -.5%, the most since 1984, according to INSEE.
Yomiuri:
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 129.50 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 110.0 -4.25 basis points.
- FTSE-100 futures +.43%.
- S&P 500 futures +.10%.
- NASDAQ 100 futures +.14%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for September is estimated at 115K versus 96K in August.
- The Unemployment Rate for September is estimated to rise to 8.2% versus 8.1% in August.
- Average Hourly Earnings for September is estimated to rise +.2% versus unch. in August.
3:00 pm EST
- Consumer Credit for August is estimated to rise to $7.250B versus -$3.276B in July.
Upcoming Splits
Other Potential Market Movers
- The Fed's Duke speaking, Eurozone Factory Orders report and the BoJ rate decision could also impact trading today.
BOTTOM LINE: Asian
indices are mostly higher, boosted by commodity and financial 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.
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- VIX 15.04 -2.53%
- ISE Sentiment Index 126.0 +14.55%
- Total Put/Call .89 -4.30%
- NYSE Arms .80 -1.66%
Credit Investor Angst:
- North American Investment Grade CDS Index 95.11 bps -.86%
- European Financial Sector CDS Index 185.86 bps -.63%
- Western Europe Sovereign Debt CDS Index 143.78 bps -1.05%
- Emerging Market CDS Index 217.55 bps +1.02%
- 2-Year Swap Spread 13.25 -.25 basis point
- TED Spread 25.5 -1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -23.0 +3.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .10% +1 basis point
- Yield Curve 142.0+4 basis points
- China Import Iron Ore Spot $104.20/Metric Tonne unch.
- Citi US Economic Surprise Index 17.70 +.3 point
- 10-Year TIPS Spread 2.55 +7 basis points
Overseas Futures:
- Nikkei Futures: Indicating +27 open in Japan
- DAX Futures: Indicating +17 open in Germany
Portfolio:
- Slightly Higher: On gains in my Biotech/Medical/Retail/Tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and covered some of my (EEM) short, then added them back
- Market Exposure: 50% Net Long
BOTTOM LINE: Today's
overall market action is bullish as the
S&P 500 trades higher despite rising global growth fears, rising
food/energy prices,
earnings worries, growing Mid-east unrest, China/Japan
tensions and US "fiscal cliff" worries. On
the positive side, Coal, Steel, Bank, I-Banking and Education
shares are
especially strong, rising more than +1.25%. (XLF) has traded well
throughout the day. Cyclicals are outperforming. The 10Y Yld is rising
+5 bps to 1.67%. Major Asian indices were mostly higher overnight, led
by a +1.0% gain in India. The Germany sovereign cds is falling -3.0% to
52.92 bps, the Portugal sovereign cds is down -3.9% to 475.90 bps, the
Ireland sovereign cds is falling -4.9% to 301.20 bps and the UK
sovereign cds is down -2.9% to 51.35 bps. On
the negative side, Computer, Defense, Networking, Computer
Service, Hospital, REIT, Gaming and Airline shares are lower on the day.
Lumber is falling -.54%, Oil is surging +4.1% and Gold is up +.74%. Major European indices are mostly lower, led down by a -.23% decline in Germany. The Bloomberg European Bank/Financial Services
Index is up +.44% today. Brazil is -.3% today and down -2.7% over the last 5 days. The Spain 10Y Yld is rising +1.6% to 5.90% and the Italian/German 10Y Yld Spread is gaining +2.6% to 368.75 bps.
The US sovereign cds is gaining +3.1% to 40.67 bps(+25.0% in 5 days) and
the Israel sovereign cds is gaining +1.9% to 149.33 bps. The
UBS/Bloomberg Ag Spot Index is up +22.7% since 6/1. The benchmark China Iron/Ore Spot Index is down -42.4% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index
also continues to trend lower despite the recent bounce. As well,
copper, oil and lumber continue to trade poorly given equity investor
perceptions that the Eurozone has successfully kicked-the-can, housing
has hit a major bottom and global central bank stimuli will boost
economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +2.4%. The Philly Fed ADS Real-Time Business Conditions Index has shown meaningful deceleration since early July. Moreover,
the weekly MBA Home Purchase Applications Index has been around the
same level since May 2010 despite investor perceptions of a big
improvement in the nationwide housing market. The Baltic Dry Index has
plunged around -65.0% from its Oct. 14th high and is now down around
-55.0% ytd. Shanghai Copper Inventories have risen +336.0% ytd. Oil tanker rates have plunged, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is very near the lowest since May, 2009.
The 10Y T-Note continues to trade too well despite today's pullback. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in a
major way in an attempt to "save" the euro even as investors continue to price this outcome into stocks. Massive tax hikes and spending cuts have still yet to hit in several key eurozone countries that are already in recession. A lack of economic competitiveness and growth incentives remain unaddressed problems. The European debt crisis is also really affecting emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades after the US election. I continue to believe that China's problems are much larger than commonly perceived
and cannot be solved with another massive stimulus package given their
real estate bubble, rising food prices/labor costs, massive
overcapacity in certain key parts of the economy and growing bad loans
problem. Little being done by global central bankers will actually boost global economic growth to an extent that overcomes the growing
macro headwinds over the intermediate-term, in my opinion. Over the intermediate-term the Fed's recklessness
greatly increases the chances of hard-landings in key emerging markets
and of a serious global stock swoon, in my opinion. Moreover,
uncertainty surrounding the effects on business of Obamacare, the "US
fiscal cliff" and rising election outcome uncertainty will likely become
more and more of a focus for US investors into the fourth quarter. The Mid-east continues to unravel at an alarming rate, as well.
The quality of the stock rally off the June lows remains poor as
breadth, volume, leadership, lack of big volume/gainers and
copper/lumber/transports relative weakness all continue to be concerns. Thus,
recent market p/e multiple expansion on global central bank
stimulus/action hopes, is creating an unstable situation for equities,
which could become a big problem unless a significant macro
catalyst materializes soon. For this year's equity advance to regain
traction, I would expect to see further European credit gauge
improvement, a subsiding of hard-landing fears in key emerging markets,
a rising 10-year yield, better volume, stable-to-lower food/energy
prices, a US "fiscal cliff" solution, a calming in Mid-east and
China/Japan tensions and higher-quality stock market leadership. I
expect US stocks to trade modestly lower into the close from
current levels on rising global growth fears, earnings worries,
Japan/China/Mideast tensions, more shorting, profit-taking and US
"fiscal cliff" concerns.
Bloomberg:
- EU Said to Doubt Viability of Spain’s 2013 Deficit-Cut Target.
Spain was told by Europe’s economic overseers that its 2013 plan to cut
the deficit to 4.5 percent of gross domestic product relies on
excessively optimistic assumptions, two people familiar with the issue
said. Olli Rehn, the European commissioner in charge of policing budget
rules, delivered the preliminary assessment to Spanish Economy Minister
Luis de Guindos at a meeting in Madrid on Oct. 1, said the people, who
declined to be named because the talks weren’t public. Spain’s
2013 budget assumes the economy will shrink 0.5 percent, less than the
1.3 percent contraction predicted by 21 analysts surveyed by Bloomberg.
Spanish central bank chief Luis Maria Linde also questioned the
government’s math today, calling it “optimistic.” Weaker economic
performance would widen the deficit, forecast at 6.3 percent of GDP in
2012, forcing the government to impose more austerity or plead for a
looser target.
- Spanish Bonds Fall Second Day as Nation Resists Seeking Bailout. Spain’s
government bonds fell for a second day as the nation resists seeking a
bailout and European Central Bank President Mario Draghi said the
country still faces significant challenges. Spanish securities
declined after the country sold 3.99 billion euros ($5.17 billion) of
two-, three- and five-year notes, while holding back from seeking
financial aid that would trigger ECB purchases of its debt. German
two-year notes fell after Draghi said policy makers didn’t discuss an
interest-rate cut at their policy meeting today, where they kept the
refinancing rate at a record-low 0.75 percent. Top-rated Finnish bonds
also slipped as the ECB chief said the euro is “irreversible.” “The
market wants to see a request for aid and this is pressuring Spanish
bonds,” said Alessandro Giansanti, a senior strategist at ING Groep NV
in Amsterdam. “The auction went quite well in terms of the demand
because the bonds were sold in the area where the ECB may buy, if Spain
asks for help.” Spanish two-year yields climbed six basis points, or
0.06 percentage points, to 3.29 percent at 4:25 p.m. London time. The
4.75 percent security due July 2014 fell 0.115, or 1.15 euros
per 1,000-euro face amount, to 102.515. The 10-year yield rose
nine basis points to 5.90 percent.
- Orphanides Says ECB Would Struggle to End Government-Bond Buying.
Former European Central Bank Governing Council member Athanasios
Orphanides said the central bank would face fierce political opposition
on any decision to stop purchasing government bonds if a government fell
behind on conditionality. “The real concern for the ECB is not how to kickstart the program, it’s the exit,”
Orphanides, who now teaches at the MIT Sloan School of Management in
Cambridge, Massachusetts, said in a telephone interview. If an agreement is reached “with a
government and it reneges on it in six months time, the ECB will
face tremendous pressure not to stop its bond purchases,” he
said.
- IMF Won’t Disburse Greek Loan If Debt Not Sustainable. The
International Monetary Fund won’t disburse its share of the Greek
bailout if the country’s debt is not deemed sustainable or if other
creditors don’t pledge to fill a financing gap in the aid package, a
fund spokesman said. IMF Managing Director Christine Lagarde last week warned that the level of Greek debt would have “to be addressed,”
pushing European policy makers to consider writing off some of
the aid to the country. While the fund is sticking to a target
of 120 percent of gross domestic product by 2020, the Greek
government forecast this week that public debt will climb to
179.3 percent of GDP in 2013.
- China Shoppers Curb Luxury Spending in Hong Kong.
Shoppers from China’s mainland curbed spending at Hong Kong luxury
stores during the Golden Week holiday, reflecting growing pressure on
the city’s economy from faltering tourist demand. Purchase of luxury
goods by mainland visitors in Hong Kong is set to fall at least 10
percent from a year ago during this week’s holiday, said Joseph Tung,
executive director of the Travel Industry Council. Lower spending in
Hong Kong hurts consumer companies from U.K.’s Burberry Group Plc.
(BRBY) to luxury watchseller Hengdeli Holdings Ltd. (3389) that have
invested in stores to profit from Chinese visitors to the city. The weaker retail sales add to the risk of a recession in Hong Kong, where the economy shrank 0.1 percent in the second quarter from the previous three months on
declining exports.
- Fed Saw Manageable Risks of New Bond Buying, Minutes Show. Federal Reserve policy makers said they could change the size of the
central bank’s monthly asset purchases to reduce the risks associated
with the program, such as disrupting financial markets and spurring
inflation.
- Initial Jobless Claims Rise. The number of Americans filing first- time claims for unemployment
insurance payments rose last week, highlighting an uneven improvement in the labor market. Applications for jobless benefits increased 4,000 to 367,000 in the week ended Sept. 29, Labor Department
figures showed today. Economists forecast 370,000 claims, according to
the median estimate in a Bloomberg survey.
- US
Unemployment Drop Masking Labor Market Weakness: Chart of the Day.
While unemployment has fallen to 8.l1% from 10% in 2009, the percentage
of people working, know as the employment-population ratio, has remained
near its lows of the recession, suggesting limited progress toward a
recovery in jobs.
- Food Prices Jump to Six-Month High as Dairy Costs Rise.
World food prices rose in September to the highest in six months as
dairy and meat producers passed on higher feed costs to consumers, the
United Nations’ Food & Agriculture Organization said. An index of 55 food items tracked by the FAO rose to 215.8
points from a restated 212.8 points in August, the Rome-based
agency reported on its website today. Dairy costs jumped the
most in more than two years. Livestock breeders and dairy farmers are passing on the
higher cost of feed, after grain prices jumped in June and July,
according to Abdolreza Abbassian, an economist at the FAO in the
Italian capital.
- California Gas Stations Begin to Shut on Record-High Spot Prices. Gasoline
station owners in the Los Angeles area including Costco Wholesale Corp.
(COST) are beginning to shut pumps because of supply shortages that
have driven wholesale fuel prices to record highs. Costco’s
outlet in Simi Valley, 40 miles (64 kilometers) northwest of Los
Angeles, ran out of regular gasoline yesterday and was selling premium
fuel at the price of regular, Jeff Cole, Costco’s vice president of
gasoline, said by telephone. The company hasn’t been able to find enough
unbranded summer-grade gasoline to keep its stations supplied, he said.
The gasoline shortage “feels like a hurricane to me, but it’s the West
Coast,” Cole said yesterday. “We’re obviously extremely disheartened
that we are unable to do this, and we’re pulling fuel from all corners
of California to fix this.”
- Oil Rises on Euro Strength. Crude for November delivery gained $1.55, or 1.8 percent,
to $89.69 a barrel at 11:46 a.m. on the New York Mercantile
Exchange. Brent oil for November settlement advanced $1.91, or 1.8
percent, to $110.08 a barrel on the London-based ICE Futures
Europe exchange.
- Gold Jumps to Highest Since November on ECB’s Bond Plan. Gold futures jumped to the highest in
almost 11 months as the European Central Bank said it is ready to start buying government bonds, boosting demand for the
precious metal as a store of value. Gold futures for December delivery climbed 0.5 percent to
$1,788.60 an ounce at 9:44 a.m. on the Comex in New York.
Earlier, the price reached $1,797.20, the highest for a most-
active contract since Nov. 14.
- Cantor Cut to Junk by Moody’s on Capital Markets Pressure.
Cantor Fitzgerald LP, the investment bank planning to add 800 people in
coming years, was cut to junk by Moody’s Investors Service on weakened
profitability. The credit grade was lowered to Ba1 as the ratings firm
expects “the capital markets operating environment to be
challenging for all participants for the medium term,” Moody’s
said today in a statement on the New York-based firm.
Wall Street Journal:
- Political Wisdom: A Big Night for Romney.
- Romney Plans Foreign-Policy Speech at VMI.
- Web Profiles Haunt Students. A growing number of top-ranked U.S. colleges say they are finding
objectionable material online that hurts the chances of prospective
freshmen.
- Reports Show Small Businesses Are Reluctant to Hire. Small businesses cut back on hiring over the summer and
small-to-medium sized firms have lowered their staffing plans for the
future, according to two reports released Thursday. The National Federation of Independent Business, a
small-business trade group, said the net change in employment per firm
over the three months ended in September was -0.23, worse than the July
and August readings. The negative result indicates slightly more firms cut workers than the share of firms who added staff. The outlook for hiring among smaller firms is also very muted. A
survey of companies with annual revenues between $100,000 to $250
million, done by PNC Financial Services Group, shows
23% of companies expect to add new employees over the next six months,
down from the 28% saying that in the spring survey. Worries about the economy’s future helps to explain some of the
reluctance toward future hiring. The PNC survey found 57% of business
owners or senior managers are pessimistic about the national economy’s
path over the next six months, up sharply from 43% saying that in the
spring.
- Henninger: The Romney Reboot Arrives. In a role reversal, Mitt Romney went on offense and put Barack Obama on defense for 90 minutes.
MarketWatch.com:
- Retailers’ September sales raise holidays concern.
Industry watchers say retailers selling basics may be safer bet. U.S.
retailers’ September comparable store sales slowed from the summer
trend, heightening the stakes for how the upcoming holiday season will
play out.
Overall, the September sales results
released Thursday edged up 0.8%,
short of the 1.6% average estimate of analysts surveyed by Thomson
Reuters. About 53% of the retailers reporting sales missed Wall Street’s
expectations.
CNBC:
- 'Discouraged' Workers Face Tough Road Back to Employment. Carver doubts she'll ever land full-time work and now focuses on just making enough money to pay the bills. Millions
of other Americans have come to the same conclusion as the worst
economic recovery since World War II has left them sidelined and unable
to replace the job they lost to the Great Recession. Many
have given up altogether, left behind by the economy and left out of
the government’s employment statistics. In fact, so many people have
given up looking for work that the official jobless rate fell to 8.1
percent last month from 8.3 percent, even though the economy is not
adding nearly enough jobs to absorb the growth in working-age
population.
- Planned Layoffs Up in September: Challenger. The number of planned layoffs at U.S. firms in September rose 4.9 percent. Employers announced planned job cuts of 33,816 last month, up from
32,239 in August, according to the report from consultants Challenger,
Gray & Christmas, Inc.
- A Huge Victory for a Principled Mitt Romney.
Mitt Romney politely cleaned Barack Obama’s clock tonight. A lethargic
and at times tired looking President Obama was out-hustled, out-facted,
out-energized, and out-informed by Former Governor Mitt Romney. Completely unlike Romney’s convention speech, tonight he focused on
strong economic issues, developed his philosophy of limited government,
and convinced me beyond a shadow of a doubt that he is in fact a
pro-growth tax reformer who wants to lower the rate, and broaden the
base in a revenue-neutral fashion that will actually create jobs and
spur the economy.
- Romney's Strong Debate Showing Puts Europe on Edge. President Barack Obama's lackluster performance in the first debate
provoked uneasiness in European capitals on Thursday, where hopes are
mostly, if unofficially, pinned on his securing a second term. In Europe, where leaders and finance officials
have worked closely with the Obama administration over the past 2½ years trying to resolve the euro area debt crisis, there was particular consternation at Romney's singling out of deficit-ridden Spain as a poorly administered economy. "Romney is making analogies that aren't based on reality," Foreign Affairs
Minister Jose Manuel Garcia-Margallo told reporters after a meeting of
his center-right party. Leading
Spanish daily El Pais highlighted the fact that Spain was the only
European country mentioned, and contrasted Romney's negative depiction
of it with Obama's praise for Spain's renewable energy policies during
the 2008 campaign. "Spain has never been mentioned in a
presidential debate as a symbol of failure," the left-leaning newspaper
lamented. "What happened last night makes history. And not in a good
way." Political
commentators in France and Germany registered surprise at Obama's
underwhelming performance, saying the election could be much tighter as a
result. "Obama
showed a lack of desire to be president, which could put him on shaky
ground as a presidential candidate," said liberal German news magazine
Der Spiegel. "It's now clear that to get back into the White House the U.S. president needs running shoes, not flip-flops." France's
Le Monde appeared equally surprised by Obama's sub-par performance.
"Where did the favorite go?" it asked on its front page, with a headline
below saying: "Obama fails his first televised debate against an
incisive Romney."
Zero Hedge:
Business Insider:
St. Louis Fed:
Reuters:
- Informatica(INFA) profit warning hits tech sector shares. Software
maker Informatica Corp (INFA.O) rattled investors with a warning on
Thursday about worsening business conditions in Europe, sending its
shares down over 25 percent and weighing on other U.S. tech stocks.
Informatica's software, which helps companies pull together data so they
can analyze business trends, is used alongside that made by bigger
software companies so its weakness often drags down peers. But analysts
said Informatica's problems may be company specific, citing an internal
sales reorganization, and said overall tech spending would likely be
stable. Nevertheless, the warning hit shares in other software firms,
particularly Qlik Technologies (QLIK.O), which was down 8.7 percent in
late morning trade on Nasdaq. Qlik generates almost 60 percent of its
revenue in Europe. Other such as Teradata Corp (TDC.N) dropped 3.4
percent, Tibco Software (TIBX.O) fell 1 percent, Citrix Systems (CTXS.O)
was down 0.9 percent while Red Hat Inc (RHT.N) and VMware Inc (VMW.N)
lost 0.7 percent and 0.5 percent respectively. Smaller software
companies have taken a hit in the last few months as customers
scrutinize deals more closely, signaling a pullback in tech spending.
- Factory orders post largest fall since recession. Demand for U.S. factory goods in August fell by the most since January
2009, but the second straight month of gains in orders outside
transportation hinted at a less rapid loss of momentum in manufacturing
activity. The Commerce Department said new orders
for manufactured goods tumbled 5.2 percent - the biggest drop since the
recession - dragged down by a slump in demand for transportation
equipment that was telegraphed in last week's report on orders for
long-lasting manufactured goods.
- Russia proposes diluted UN text on Syria attack in Turkey. Russia on Thursday blocked
adoption of a draft U.N. statement condemning a deadly Syrian
mortar attack on a Turkish town and proposed a weaker text
calling for "restraint" on the border, without referring to
breaches of international law. Western diplomats complained that Russia's proposed Security
Council statement, if accepted by the 15-members, would weaken
the message to an unacceptable degree. Negotiations on the
non-binding statement were continuing, they said.
- US authorities charge 91 in $430 mln Medicare fraud. Ninety-one people including
doctors, nurses and other medical professionals have been
charged with committing $430 million in Medicare fraud in seven
U.S. cities, authorities said on Thursday. An investigation coordinated by the U.S. Justice Department
and the Department of Health and Human Services uprooted alleged
false billing schemes involving $230 million in home health
services, over $100 million in mental health services and $49
million from ambulance transportation. Charges range from healthcare fraud and conspiracy to wire
fraud, kickback violations, identity theft and money laundering.
- Fitch: Brazilian banks face volatility, uncertainty, economic slowdown.
Telegraph:
Handelsblatt:
- European
parliament lawmakers from Germany's Christian Democratic Union and
Christian Social Union want euro-area countries to be able to leave the
common currency temporarily if they can't reduce debt levels, citing a
paper drafted by the politicians. The 42 lawmakers said
the euro area needs a process for states to declare insolvency in an
orderly fashion and the common currency won't break up if that happens.
The declaration marks a break with Germany's CDU Chancellor Angela
Merkel, who wants to keep Greece in the euro. The lawmakers want ECB
bond-buying to be limited in its duration and volume, on the ground that
it could stoke inflation in the "mid-term".
Focus:
-
Bavaria's
Soeder Says ECB Bond Buying Is No Cure. The ECB weakens concept of ESM,
fiscal pact, Markus Soeder, Germany's Bavarian state finance minister.
ECB president Draghi generates mistrust regarding currency stability, he
said. The ECB is not allowed to play active political role in saving
the euro. If Germany has to pay for debtor nations, German citizens must
agree in referendum, Soeder said.
IMK Economic Institute:
- ECB Bond-Buying Conditionality May Damp Region's Recovery: IMK. The
conditionality under which the ECB would agree to buy troubled euro
member states' bonds may damp the area's economy recovery, Germany's
labor union-affiliated IMK economic institute says. The Euro's decline
against he dollar, and German consumer spending help bolster the
region's economy, IMK said. The Euro region economy will shrink -.5% in
2012 and -.7% in 2013, IMK said.
El Pais:
- Catalan
President Artur Mas said the budget-deficit targets set for Spanish
regions next year are "unreal" and likely won't be met. Mas called for
the central government to deliver larger share of austerity measures.
"The current distribution of the deficit is unreal and very dangerous
because it could destabilize social cohesion," he said. Mas's comments
break the agreement Prime Minister Mariano Rajoy brokered with regional
leaders Oct. 2.
