Thursday Watch

Evening Headlines
Bloomberg: 

• Spain Downgraded to One Level Above Junk by S&P on Risks. Spain’s debt rating was cut to one level above junk by Standard & Poor’s, which cited mounting economic and political risks as the government considers a second bailout. The country was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement yesterday. S&P assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2. “The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the lack of a clear direction in euro-zone policy,” S&P said. “The deepening economic recession is limiting the Spanish government’s policy options.”
• Euro Falls Against Most Peers After S&P Downrades Spain. The euro weakened against most of its major counterparts after Standard & Poor’s cut Spain’s debt rating to one level above junk. The Dollar Index (DXY) climbed to a one-month high before Italy sells bonds today amid concern Europe’s debt crisis is deepening, boosting demand for the greenback as a haven.“I can see further weakness to the euro from here,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “If the fiscal outlook is much worse in Spain, it could fall to junk status.”
• EADS-BAE Failure Shows Road to Integrated EU Runs Through Berlin. In effectively scuttling the planned merger between European Aeronautic, Defence & Space Co. and BAE Systems Plc (BA/), Germany demonstrated the road to European integration runs through Berlin. As Chancellor Angela Merkel’s government has shown in almost three years of managing the euro-area financial crisis, the interests of German taxpayers trump strategic designs --even in defense, where German spending is about half of Britain’s as a share of its economy. 
• Japan Machinery Orders Slide 3.3% as Economy Risks Shrinking. Japan’s machinery orders fell more than expected in August, a sign that companies will cut back spending as global demand slows. Orders, an indicator of capital spending in three to six months, declined 3.3 percent after rising 4.6 percent in July, the Cabinet Office said today in Tokyo. The median of 26 estimates in a Bloomberg News survey was for a 2.3 percent drop. Today’s data follow government reports last month showing declines in industrial output and exports, underscoring the risk of a contraction in gross domestic product. In an interview in Tokyo, Japanese Prime Minister Yoshihiko Noda yesterday called for talks to contain economic damage from a dispute with China over East China Sea islands. “There’s a growing number of people who are pessimistic about the economic outlook,” Jun Kawakami, an economist at Mizuho Securities Co. in Tokyo, said before the report. “It’s really hard to see any signs that companies will increase capital spending.”
• Disputed Islands With 45 Years of Oil Split China, Japan. China and Japan sat down for talks and agreed to jointly develop a natural gas field under the East China Sea, defusing a dispute between Asia’s biggest economies over who owns the reserves. That was in 2008. The accord, hailed as a model for cooperation at the time, has yet to be carried out and the countries now face a new territorial dispute, also in the East China Sea. The quarrel over who owns the uninhabited islands called Diaoyu by China and Senkaku by Japan is again linked to a prize beneath the ocean that may hold enough oil to keep China running for 45 years. 
• Japan Electronics Emulates Detroit Autos Before Bankruptcy: Tech. 
• Bank of Korea Cuts Interest Rates as the Economy Slows. The Bank of Korea cut borrowing costs for a second time this year, adding to government efforts to avoid a deeper slowdown amid Europe’s debt crisis and a cooling global economy. Governor Kim Choong Soo and his board lowered the benchmark seven-day repurchase rate to 2.75 percent from 3 percent after a surprise reduction in July, the central bank said in a statement in Seoul today. The decision was predicted by 13 of 16 economists surveyed by Bloomberg News, with the rest projecting no change. “Korea’s export-oriented economy has struggled due to weakness in Europe, the U.S. and China, all of which are important markets for its exporters,” Sukhy Ubhi, an economist at Capital Economics Ltd. in London, said before the release. “Global growth is likely to remain weak not just for the remainder of this year but in 2013 too. The BOK will loosen policy both this year and next.” 
• China Stocks Fall on Economic Concerns. China’s stocks fell after auto sales unexpectedly dropped and the 21st Century Business Herald reported new bank loan growth slowed last month. SAIC Motor Corp. (600104) led declines for automakers after Chinese vehicle sales shrank for the first time in eight months. Jiangxi Copper Co. (600362) and Aluminum Corp. of China Ltd. retreated more than 1 percent as Goldman Sachs Group Inc. said copper and aluminum demand in the country is set to plunge by 2014. Industrial & Commercial Bank of China Ltd. paced losses for lenders on a 21st Century report that new bank loans for the four biggest banks in September were less than the previous month. The Shanghai Composite Index (SHCOMP) slid 0.5 percent to 2,108.84 at 9:54 a.m. local time.
• U.S. Sets Anti-Dumping Duties on China Solar Imports. The U.S. Commerce Department set anti-dumping duties ranging from 18.32 percent to 249.96 percent on solar-energy cells imported from China, reducing preliminary penalties imposed on Trina Solar Ltd. (TSL) and raising them slightly on Suntech Power Holdings Co. The duties, the result of a complaint brought by the American unit of Bonn-based SolarWorld AG (SWV), may worsen trade relations between the U.S. and China, the world’s largest economies. The countries have sparred over government support for clean energy as President Barack Obama and Republican challenger Mitt Romney each pledge tough action on China ahead of next month’s U.S. election.

Wall Street Journal: 

• Botched in Benghazi. New evidence on the Libya debacle and false White House spin. At Wednesday's House oversight hearings into the attack on the U.S. diplomatic mission in Libya, Democrats protested loudly about a GOP political witch hunt. If only such alleged partisanship were always so educational. The Congressional investigation has in a few hours brought greater clarity about what happened before, during and after the events of 9/11/12 than the Obama Administration has provided in a month. Among the revelations:
• PC Sales Go Into a Tailspin. The personal-computer business has entered a tailspin. Reports from research firms Wednesday provided new details about the industry's worsening condition, triggered by factors that include cannibalization by tablet computers, sluggish economic conditions and slowing PC sales in emerging countries. The grim signs come as Microsoft Corp. and its allies are hoping to generate excitement in late October with a new version of Windows and new devices designed to run the software. Researchers IDC and Gartner Inc. said PC shipments in the third quarter fell more than 8% from a year earlier, the steepest drop since at least 2001.
• Fed Governor: Put Cap On Big Financial Firms. 
• Obama and the L-Word. 'Liar' is potent and ugly—with a sleazy political pedigree. The election campaign of the 44th U.S. president is now calling another candidate for the American presidency a "liar." This is a new low. It is amazing and depressing to hear this term being used as a formal strategy by people at the highest level of American politics. "Liar" is a potent and ugly word with a sleazy political pedigree. But "liar" is not being deployed only by party attack dogs or the Daily Kos comment queue. Mitt Romney is being called a "liar" by officials at the top of the Obama re-election campaign.

Fox News: 

• Downplaying Libya Attack Proves Fateful for Obama. Team Obama’s decision to downplay the attack on the U.S. consulate in Benghazi, Libya has turned out to be a fateful one. President Obama’s single best advantage going into the heat of the 2012 campaign was on terrorism and national security.

MarketWatch.com: 

• Insiders overwhelmingly choosing sells over buys.

CNBC:

• Bank of Korea Sharply Cuts Economy's Growth Forecasts. South Korea's central bank sharply cut its economic growth forecasts for this year and next after trimming interest rates for the second time this year to shore up Asia's fourth-largest economy on Thursday, its governor said. The Bank of Korea cut this year's economic growth forecast to 2.4 percent from 3.0 percent set in July and that for next year to 3.2 percent from 3.8 percent, Governor Kim Choong-soo told reporters. 
• Earnings Season Stinging Stocks.

Zero Hedge:

• The Toothless 'Euro' Tiger And The Issue Of Fiscal Compliance.  
• The US Economy In Q4.  
• Food Inflation To Surge, Goldman(GS) Warns.  
• Is Ireland Really The Poster-Child Of Europe's Austerity Plans?  
• JP Morgan's(JPM) Dimon Builds Fiscal Cliff Bunker As CFO Exits "Balance Sheet Fortress".

Business Insider: 

• Dylan Grice Is Watching Three Developments Very Closely Right Now.  
• Wall Street Earnings Forecasters Have Been Hopelessly Over-Optimistic For The Last 20 Years. (graph) 
• The Mafia Still Controls An Incredible Amount Of Southern Italy. 
• Mitt Romney Storms Ahead In Another National Poll, Wiping Out A Huge Pre-Debate Obama Lead. Mitt Romney has pulled ahead of President Barack Obama in another national poll. This time, he leads Obama by a razor-thin 45-44 mark in the Reuters/Ipsos daily tracking poll, gaining a point from Tuesday's result. The poll — which consists entirely of post-debate interviews — is a 6-point shift from the last Reuters/Ipsos poll before the debate, when Obama led Romney 46-41.

Reuters: 

• Yuan hits record high as PBOC signals tolerance of appreciation.
• BoE's Weale casts doubts on QE, warns on triple dip - paper. Another round of quantitative easing may not be "compatible" with the Bank of England's inflation target, and does not provide a definite answer to boost Britain's economy, Martin Weale, a top BoE policymaker, said in comments published on Thursday. "It is certainly not self-evident to me in the light of the apparent stickiness of inflation that substantial extra support for the economy would be compatible with the inflation target. I am concerned about the stickiness of inflation," Weale is quoted as saying in the Daily Mail newspaper. Weale also warned that Britain could suffer a 'triple-dip' recession, meaning the economy slides back into negative growth later this year after the briefest of revivals. 
• Democrats fret about Big Bird's star turn in Obama campaign. In 2008, singer will.i.am provided Barack Obama's presidential campaign with music for its signature anthem, "Yes We Can." On Tuesday, at a rally for Obama in Columbus, Ohio, the performer chose to play something new: the theme song for "Sesame Street." For Obama's supporters, already dismayed by the president's halting performance in last week's debate with Republican Mitt Romney, that change in tune is a new source for concern as they fret that a children's TV show has become a new backdrop for their candidate's campaign. In a moment of tightening polls and climbing anxiety for Obama's supporters, the president's decision to grant Big Bird a starring role in his campaign this week has presented another reason to reach for the Alka-Seltzer. Since the debate, Obama has been piling on, joking about Romney's designs for the TV show at every campaign stop. Conservatives have been crowing that the silly turn in the campaign diminishes the president. "President Obama tried to give the bird to Mitt Romney-but wound up laying an egg," the New York Post wrote Wednesday.
• California misses September revenue target by $162.5 mln. California's September revenue came in $162.5 million, or 2.2 percent, below projection in the state budget as revenue from sales and corporate taxes fell below expectation, State Controller John Chiang's office said on Wednesday.

Telegraph:

• Why the IMF has got it so hopelessly wrong on the euro crisis. David Cameron and George Osborne are not for turning, but the International Monetary Fund is plainly made of flimsier stuff. The latest flurry of economic analysis from the IMF – to coincide with the annual meeting in Tokyo – has revealed a not so subtle change of heart over fiscal austerity.
• IMF fears 'credit shock' in Spain if Rajoy blocks rescue. The International Monetary Fund has issued a veiled warning that Spanish bond spreads could surge to a record 7.5pc and push the country into a deeper crisis if premier Mariano Rajoy continues to drag his feet on a bail-out request. The Franco-Spanish tete-a-tete comes two days before leaders of a newly-dubbed “Mediterranean Front” gather in Malta to thrash out a Latin strategy and plot ways to break the German lockhold on policy.

Apple Daily:

• Luk Fook Same-Store Sales Fall More Than 30% in Golden Week. That compares with 65% growth in same period last year, citing financial controller Law Tim Fuk. Visitors this year reduced their purchases. Law expects yearly growth of jewelry sector to slow to single digits in the future.

21st Century Business Herald:

• China Big 4 Banks Sept. New Loans 166B Yuan. New loans were 50B yuan less than in August, citing people familiar with the matter. Bank of China and the Agricultural Bank of China new loans "declined significantly" on the month.

Evening Recommendations  
Piper Jaffray:

• Rated (GRA) Overweight, target $70.
• Rated (ECL) Overweight, target $76.
• Rated (FUL) Overweight, target 37.

Night Trading

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 134.0 unch.
• Asia Pacific Sovereign CDS Index 111.0 unch.
• FTSE-100 futures -.27%.
• S&P 500 futures +.01%.
• NASDAQ 100 futures +.11%.

Morning Preview Links 

Earnings of Note
Company/Estimate

• (FAST)/.37
• (SWY)/.43
• (JBHT)/.66 

Economic Releases
8:30 am EST

• The Import Price Index for September is estimated to rise +.7% versus a +.7% gain in August.
• The Trade Deficit for August is estimated to widen to -$44.0B versus -$42.0B in July.
• Initial Jobless Claims are estimated to rise to 370K versus 367K the prior week.
• Continuing Claims are estimated to fall to 3275K versus 3281K prior.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bullard speaking, Fed's Plosser speaking, Fed's Stein speaking, Italy bond auction, eurozone inflation data, China new loan data, G7 Finance Ministers Meeting, USDA crop report, 30Y T-Bond auction, weekly EIA energy inventory reports, weekly Bloomberg Consumer Comfort Index, Bloomberg US Economic Survey for October, (IRM) investor day and the (ACN) analyst conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology 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 25% net long heading into the day.

Stocks Falling into Final Hour on Rising Global Growth Fears, US Fiscal Cliff Worries, Eurozone Debt Angst, Tech/Commodity Sector Weakness

Today's Market Take:

Broad Market Tone:

• Advance/Decline Line: Lower
• Sector Performance: Most Sectors Declining
• Volume: Slightly Below Average
• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 16.33 -.24%
• ISE Sentiment Index 126.0 +65.79%
• Total Put/Call .99 -1.0%
• NYSE Arms 1.38 +63.94%

Credit Investor Angst:

• North American Investment Grade CDS Index 99.03 bps +.94%
• European Financial Sector CDS Index 185.94 bps +.28%
• Western Europe Sovereign Debt CDS Index 141.41 bps +.42%
• Emerging Market CDS Index 227.55 bps +1.0%
• 2-Year Swap Spread 12.25 +.25 basis point
• TED Spread 24.75 -.75 basis point
• 3-Month EUR/USD Cross-Currency Basis Swap -25.25 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
• Yield Curve 142.0 -3 basis points
• China Import Iron Ore Spot $117.70/Metric Tonne +.43%
• Citi US Economic Surprise Index 42.60 -.8 point
• 10-Year TIPS Spread 2.51 -4 basis points

Overseas Futures:

• Nikkei Futures: Indicating -25 open in Japan
• DAX Futures: Indicating -9 open in Germany

Portfolio:

• Slightly Higher: On gains in my index hedges and emerging markets shorts
• Disclosed Trades: None
• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg: 

• European Stocks Decline for a Third Day; AB InBev Falls. European stocks declined for a third day as investors speculated that economic fundamentals don’t justify current stock valuations and Alcoa Inc. (AA) cut its forecast for global aluminum demand. Anheuser-Busch InBev NV slipped 1.2 percent after a report that the U.S. may block its $20 billion takeover of Grupo Modelo SAB. BAE Systems Plc (BA/) fell after abandoning plans to merge with European Aeronautic, Defence & Space Co. Imagination Technologies Group Plc (IMG) lost 9.4 percent as analysts recommended selling the shares. The Stoxx Europe 600 Index (SXXP) dropped 0.6 percent to 268.71 at the close of trading, the lowest level since Sept. 28.
• Merkel Ally Michelbach Rejects IMF Demands to Cut German Surplus. Hans Michelbach, lawmaker from Angela Merkel's coalition partner the CSU, says the IMF demand to limit Germany's trade surplus is reminiscent of a planned economy policy that should be part of the past, according to an e-mailed statement. Michelbach says the IMF focused only on European debt crisis and "completely ignores" inflationary risks from liquidity expansion by U.S. central bank.
• Lagarde Signals IMF Role in Europe Rescues May Not Need Cash. The International Monetary Fund doesn’t need to lend money to Spain to help the country tackle its fiscal crisis, Managing Director Christine Lagarde indicated in an interview today. “Some people say unless you have skin in the game, meaning money, you are not really respected, you are not heard,” Lagarde said in a Bloomberg Television interview with Sara Eisen in Sendai, Japan. “I am not so focused on that as I am on the monitoring. I think we would rather act in our framework, use one of the tools that is frequently used, but as I said we can be flexible.” 
• Dimon Says Bond-Market Turn Assured on U.S. Budget Impasse. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said bond markets would spurn U.S. debt if lawmakers fail to reach an agreement to address the nation’s deficit. “It’s virtually assured” that markets would react that way, Dimon said today in Washington at an event held by the Council on Foreign Relations. “The question is when and how.” 
• Turkey Threatens Even Stronger Response to Syrian Fire. Turkey’s top general warned of a tougher response if Syrian shells continue to land on Turkish soil following six days of retaliatory barrages by his forces against President Bashar al-Assad’s army. General Necdet Ozel, chief of the Turkish general staff, made the comments today as he inspected troops in Akcakale as well as the border town of Suruc in Sanliurfa province, CNN-Turk television said. Ozel observed Syrian territory through a thermal camera before speaking to soldiers in a foxhole in Suruc, the state-run Anatolia news agency said.
• Fed Says Economy Grows ‘Modestly’ as Housing, Autos Improve.
• Record Heating Bills Seen in U.S. as Colder Winter Forecast. U.S. households that use heating oil will face record prices this winter as weather forecasters predict colder temperatures in the Northeast that will drive up demand, according to a government report. The Energy Information Administration, which tracks and analyzes energy data, projects households will spend 19 percent more on average for heating oil and 15 percent more for natural gas from Oct. 1 to March 31, the period covered in its short- term energy and winter fuels outlook released today.
• Drought Cuts U.S. Crops Below Demand First Time in 38 Years. Drought damage to corn and soybean fields in the U.S., the world’s top grower and exporter, is eroding supplies of the nation’s two largest crops to below year-earlier consumption levels for the first time since 1974. 
• Gold Best of Biggest ETFs as Traders Seek Haven: Riskless Return. Exchange-traded funds tracking gold and inflation-protected Treasuries provided the best risk- adjusted returns of the biggest ETFs in the past five years as record stimulus by the Federal Reserve sent investors searching for inflation havens.

Wall Street Journal: 

• BAE-EADS Merger Collapses. Aerospace and defense companies BAE Systems BA.LN -1.38% PLC and European Aeronautic Defence & Space Co. EAD.FR +5.29% called off their planned merger after the U.K., France and Germany failed to agree on how much influence they should have over the combined entity.  
• Romney Takes Lead in Poll Benchmark. Mitt Romney has inched ahead of President Barack Obama for the first time in a year in a widely watched benchmark – the aggregation of national polls developed by Real Clear Politics website. Mr. Romney’s breakthrough came Tuesday, when he ended the president’s unbroken general-election lead in the aggregate, which the website compiles by averaging recent national polls. As of Wednesday morning, Mr. Romney was ahead 48% to 47.2%. 
• U.S. Scaled Back Libya Security Before Attack. The State Department scaled back security in Libya in the months leading up to the deadly Sept. 11 attack in Benghazi that killed four Americans, including Ambassador Christopher Stevens, a former security official told Congress on Wednesday. At the start of a contentious hearing on the assault, Lt. Col. Andrew Wood told lawmakers that diplomatic security teams were gradually withdrawn from the country earlier this year, despite concerns that threats to Westerners were on the rise. 
• China IMF Cancellations Raise Concerns. Souring relations between Japan and China, which suffered another blow Wednesday when China's central-bank governor and finance minister pulled out of a high-profile gathering of global finance chiefs in Tokyo, are starting to cause serious economic damage that could deepen if passions stay high, investors, analysts and politicians here warned. The revelation that China's two highest-level delegates had withdrawn from the annual meeting of the International Monetary Fund and World Bank in Tokyo amid an escalating dispute between Asia's two biggest economies, sent stocks to a two-month low and heightened worries about real-world impacts. 
• Wall Street Jobs May Shrink Further. Wall Street has cut 1,200 jobs since the beginning of 2012 and could contract further over the remainder of the year, while the securities industry's cash-bonus pool is expected to decline for the second consecutive year, according to a report released by New York State Comptroller Thomas DiNapoli.
• China Car Sales Fall Amid Japan Tensions.

Zero Hedge:

• JOLTS Drop Un-Confirms BLS 'Reality' (graph)  
• Two Charts To Strike Fear In The Heart Of Euro Bulls. 
• Europe Ends Red With Sovereigns Seeing Selling-Pattern Seven Days-In-A-Row. (graphs)  
• Is The IMF Now Recommending Capital Controls...?

Business Insider:

• CHART OF THE DAY: Corporate Profit Margin Expectations Are Out Of Control. 
• Joe Biden's Image Has Sunk Dramatically In The Past Four Years.  
• Walmart(WMT) Workers Are Threatening To Strike On Black Friday. 
• All Evidence Points To Obama Raising Middle Class Taxes By $4,000 A Year. 
• Here's What Actually Went Down During The US Consulate Last Month In Benghazi. 
• 'The Debt Super-Cycle Goes Into Orbit'. (graph) 
• Global Food Crisis Risk Is Soaring [MAP]. 
• The Horrific, Worst-Case Scenario For Spain.  
• DYLAN GRICE: This Keynes Quote Sums Up Our Worst Fears About Easy Monetary Policy. 
• DAVID ROSENBERG: Here's Your Big Red Flag That We Could Be Heading For Recession. (graph) 
• The China-Japan Dispute Isn't Getting Any Better, And Now Taiwan Is Jumping Into The Fray. 

Telegraph: 

• Angela Merkel's visit to Greece: what the papers say. "Disgusting" protests, "outrageous" support from Germany's left wing leader for his Greek counterpart and "relief and satisfaction" is some of the media reaction following Angela Merkel's meeting with Antonis Samaras on Tuesday.

Rheinische Post:

• Germany Sees Significant Economy Downside Risks. German economy "developing with noticeably subdued dynamic," citing economy ministry's report for October. Sentiment among entrepreneurs has continued to deteriorate. The increase in employment has stalled for first time in 2 years.

Onda Cero radio:

• Almunia Says Catalan Independence Would Mean EU Exit. Catalonia would cease to be a member of the EU if it became independent from Spain, European Competition Commissioner Joaquin Almunia was quoted as saying in an interview.

IIFL:

• S&P sees significant chance of India rating downgrade. S&P says that India's rating downgrade is likely if growth prospects dim, external position deteriorates, political climate worsens or fiscal reforms slow.

Bear Radar

Style Underperformer:

• Large-Cap Value -1.02%

Sector Underperformer:

• 1) Disk Drives -4.0% 2) Energy -2.03% 3) Computer Hardware -1.98%
  

Stocks Faling on Unusual Volume:

• END, WNR, CLMT, PCS, CVX, BMA, EQIX, SIMO, MNST, LLY, AMCX, VIAB, HDB, PHT, RCS, PCN, PTY, WMC, AVT, WPC, HELE, ESE, MTGE, AMTG, AGNC, CMI, DAR, AMRN, SIMO, LPI, LINE, HRB, ARW, WBC, NXPI, EXPR, CELG, TSO, DAR, SKYW and PHK
  

Stocks With Unusual Put Option Activity:

• 1) MBI 2) BBY 3) CTSH 4) COF 5) FDX
  

Stocks With Most Negative News Mentions:

• 1) OC 2) CVX 3) DO 4) RDC 5) THI
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.03%

Sector Outperformers:

• 1) Restaurants +1.68% 2) Homebuilders +1.39% 3) Gold & Silver +.77%
  

Stocks Rising on Unusual Volume:

• TRLG, YUM, FDX, COST and QLIK

Stocks With Unusual Call Option Activity:

• 1) FDX 2) WMT 3) CIEN 4) QLIK 5) COST
  

Stocks With Most Positive News Mentions:

• 1) DLTR 2) SFLY 3) CLR 4) YUM 5) PGR

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• IMF Says European Banks May Sell $4.5 Trillion in Assets. The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate. Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA (UCG) to Deutsche Bank AG (DBK) to shrink assets, the IMF said. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery. “Intensification of the crisis has manifested itself in capital outflows from the periphery to the core at a pace typically associated with currency crises or sudden stops,” the IMF wrote in its Global Financial Stability Report released today. “Restoring confidence among private investors is paramount for the stabilization of the euro area.”
• ‘Titanic’ Defaults Loom on Restructured India Bank Debt.
• Apple(AAPL) Choice of IPhone Aluminum Said to Slow Down Output. Apple Inc. (AAPL)’s iPhone 5 supply shortfall is being exacerbated by a quality-control crackdown at Foxconn Technology Group that’s designed to cut the number of devices shipped with nicks and scratches, according to a person familiar with the matter.
• Ambassador Died in Smoke While Agents Searched for Him. On the last day of his life, U.S. Ambassador Chris Stevens retired to his room in the American diplomatic compound in Benghazi, Libya at about 9 p.m. after a quiet day. Forty minutes later, security agents heard gunfire and explosions near the front gate of the compound, which recently had been reinforced with nine-foot walls and concrete Jersey barriers, two State Department officials told reporters yesterday. Their narrative of what happened on the night of Sept. 11 is the first detailed account of how Stevens died, and it contradicts the Obama administration’s initial contention that the attack began as a spontaneous protest over an anti-Islamic video clip. The officials also offered the first detailed description of the compound’s and Stevens’ security, which are the focus of a hearing today by the House Oversight and Government Reform Committee.  
• Facebook(FB) Fought SEC to Keep Mobile Risks Hidden Before IPO.

Wall Street Journal:

• Jack Welch: I Was Right About That Strange Jobs Report. The economy would need to be growing at breakneck speed for unemployment to drop to 7.8% from 8.3% in the course of two months. Imagine a country where challenging the ruling authorities—questioning, say, a piece of data released by central headquarters—would result in mobs of administration sympathizers claiming you should feel "embarrassed" and labeling you a fool, or worse. Soviet Russia perhaps? Communist China? Nope, that would be the United States right now, when a person (like me, for instance) suggests that a certain government datum (like the September unemployment rate of 7.8%) doesn't make sense. Unfortunately for those who would like me to pipe down, the 7.8% unemployment figure released by the Bureau of Labor Statistics (BLS) last week is downright implausible. And that's why I made a stink about it.  
• U.S., Japan Face Risks As Havens, IMF Warns. The world's two largest advanced economies, the U.S. and Japan, face growing long-term risks from investors fleeing trouble spots around the world, the International Monetary Fund warned Wednesday. Safe-haven flows into the U.S. and Japan are pushing interest rates down and lulling investors and policy makers into complacency, the fund said in a report on financial-stability risks released ahead of its fall meeting here. The IMF's warning is part of its broader global effort to sound the alarm about government deficits and debt across advanced economies, hoping to spur governments to take action before those economies potentially plunge into crisis.  
• U.S. Sues Wells Fargo(WFC) for Faulty Mortgages.
• New York Ranked Last on Taxes. New York imposes a more onerous tax burden on businesses than any other state, according to a new study. The Tax Foundation, a nonpartisan research group in Washington, D.C., ranked New York last among the 50 states in its annual "business climate" analysis of local tax regimes. The group reviewed individual and corporate income-tax structures, as well as sales, property and unemployment insurance taxes on the state and local levels.
• Jeans Maker for Sale. True Religion(TRLG) Seeks Buyer as Denim Brand's Cachet Fades.

Fox News: 

• Romney makes gains in battleground, national polls. In a national Gallup poll released Tuesday, Romney was leading 49-47 percent among likely voters. A Reuters-Ipsos national poll showed the candidates tied. The RealClearPolitics average of polling now shows Romney leading by less than 1 percentage point in Florida, and Obama leading by the same airtight margin in Ohio. Obama was well ahead in those states just days ago. Further, Romney's post-debate surge appears to have all but wiped out Obama's once double-digit lead among women voters. A Pew Research Center survey released Monday depicted a remarkable swing in the numbers, with Romney pulling even among women in polling late last week. In September, the same polling outfit showed Obama leading by 18 points among women. Among all likely voters surveyed, Romney climbed from an 8-point deficit last month to a 4-point lead. 

Barron's:  

• Yum Brands(YUM) Rising after Beat, Wider Margins.

MarketWatch.com: 

• HSBC emerging-market growth index falls in Q3. Emerging-market economies continued to expand in the third quarter, but the pace of that expansion is looking "feebler by the day," according to an HSBC report released Tuesday. During the quarter, a moderate expansion in the services sectors of these economies came as there was a decline in manufacturing, according to HSBC's data. Despite the service sector's expansion, the longer-term outlook for services fell to its lowest level since the survey began in 2005. The HSBC Emerging Markets Index fell to 52.1 in the third quarter of 2012, from a revised 53.2 in the second quarter of the year. "The end result is disappointment in the emerging world, in particular China, which continues to surprise to the downside," said Murat Ulgen, HSBC's chief economist for Central and Eastern Europe and sub-Saharan Africa, in the firm's report. In China, output rose only marginally, and in Brazil, private-sector manufacturing stagnated. The weakness in manufacturing is also spilling into other sectors of the economy. Poor manufacturing weighs on incomes and profits, thereby reducing broader consumption and investment. Until recently, the services sector had seemed immune from slowing global growth. But in the third quarter, services output expanded at its slowest pace this year. In Brazil, services output stagnated--its worst performance since the global crisis.
• A costly ticket to ride for China subway projects. Despite Beijing’s approvals, local governments need means to pay.
• Spain could opt out instead of getting a bailout. Commentary: Leaving the euro isn’t so far-fetched.

CNBC: 

• Chevron(CVX) Forecasts Lower Profit Ahead. Chevron, the second-largest U.S. oil company, said on Tuesday that its third-quarter profit would be substantially lower than the previous quarter as a weak performance from its oil and gas production arm got no help from the refining side. 
• Middle East Trouble Could Steal Focus From Growth Concerns. A sudden bubbling up of oil prices has shifted market focus to the Middle East, heading into Wednesday’s session.

Zero Hedge: 

• The ECB-Driven Toxic Debt Loop At The Heart Of Europe's Misery. 
• The Unstimulus.
• Everything You Need To Know About Resolving The Fiscal Cliff But Were Afraid To Ask.  
• NFIB - Small Businesses Don't Agree With BLS. 

Business Insider:

• Alcoa(AA) Cuts Global Demand Forecast, Blames China. 
• A Firm Has Taken Responsibility For Today's Violent Stock Swings, But What Happened Is Still Weird. 
• Rand Paul Is Launching A Brutal Ad Campaign To Destroy Democrats Over Foreign Aid. (video)
• STEVE WYNN: What The Federal Reserve Is Doing Is What Bernie Madoff Went To Jail For. (video)
• SHEILA BAIR: Here's How The Obama Administration Screwed Up The Wall Street Bailout. (video)
• ANALYST: Solar Power Will Never Work For The Vast Majority Of The World.

Forbes: 

• China Economy Remained Weak In Third Quarter. China’s economy likely remained weak in the third quarter ending in September, the state owned Industrial Bank said on Wednesday. “It is hard to say when China’s economic recovery will be in sight,” Lu Zhengwei, chief economist at the Industrial Bank told China Daily in the Wednesday edition of the paper. “We expected the economy to stabilize in the third quarter, but the weak performance in the past few months has dashed our expectations.”
  

Rasmussen Reports:

• Daily Swing State Tracking Poll. Swing State Tracking: Romney 49%, Obama 47%.

Reuters:

• Cummins(CMI) lowers sales forecast, to cut up to 1500 jobs. U.S. engine maker Cummins Inc lowered its 2012 forecast for the second time this year, citing delays in customer spending due to a weakening global economy, and said it would cut up to 1500 jobs. Cummins now expects full-year sales of $17 billion, down $1 billion from its prior view. "Investors expected a guidance cut from Cummins this quarter but this does look to be a bit more than expected," William Blair & Company analyst Lawrence De Maria said. Chief Executive Tom Linebarger said Cummins had lowered its full-year revenue forecast for several markets, with the most significant changes made in the North America heavy duty truck and the international power generation markets. "Demand in China has weakened in most end markets and we have also lowered our forecast for global mining revenues," Linebarger said. Cummins shares were trading down 4 percent at $87.10 in extended trade, after closing at $90.84 on the New York Stock Exchange.  
• FSA eases bank rules to support lending - FT. Britain's Financial Services Authority has relaxed capital and liquidity rules on banks in an effort to stimulate lending and use bank regulation to moderate the economic cycle, the Financial Times reported on Wednesday.  
• Philippine August Exports Drop -9.0%, Steepest Drop in 8 Months. 
• China to send deputy finance minister to IMF Tokyo meet amid island spat. China's delegation to the annual meetings of the IMF and the World Bank in Tokyo will not be led by its most senior finance officials, a report from state news agency Xinhua said on Tuesday, in what looked like a deliberate snub of Japan. According to Chinese protocol, only the most senior officials usually lead such trips, but the report said China's deputy central bank governor and vice finance minister would be leading the central bank's delegation later this week instead. 
• ECB's Visco: talk of euro breakup reflects doubts on crisis efforts.
• Euro slips near 200-day average as risk sentiment hurt. The euro dropped to its lowest since the start of month against the d ollar and the yen on Wednesday, as investors shied away from risk on concerns about weak earnings in the United States due to a slowdown in global growth. Asian shares followed a drop on Wall Street overnight, when technology stocks fell on brokerage downgrades of Intel and other major companies, as worries mounted about third-quarter U.S. earnings, which firms began reporting on Tuesday. The euro slipped 0.3 percent to $1.2840, its lowest since Oct 1 and coming close to an important technical support of its 200-day average at $1.2822. Some traders say the market is likely to test that level to trigger more stop-loss orders. "If the 200-day average is broken, there will be selling from model players. I feel the market is likely to test that level," said Takahiro Suzuki, vice president of forex at Nomura Securities.
• Moody's warns of downgrades to California cities. Moody's Investors Service said on Tuesday it placed under review for downgrade lease-backed obligation and general obligation ratings of several California cities and downgraded the pension obligation bonds of eight cities and one pooled financing in state. The moves affect $14.3 billion of debt and come amid concerns among some credit rating analysts about California's economy and the willingness of financially distressed cities in the most populous U.S. state to pay their debts.

Financial Times:   

• Hedge funds reap gains from MBS. Hedge funds are reaping some of their biggest profits from the securitised mortgage market since 2007, when mispricings in complex debt securities led to huge windfalls for savvy traders such as John Paulson and the near-collapse of the global banking system. While the average hedge fund has made just 4.6 per cent so far this year, funds dabbling in US mortgage-backed bond markets have reaped far bigger gains, in some cases running into the hundreds of millions of dollars, investors say.
  

The Standard:

• Record Home Prices Raise Bubble Specter. Home prices and rents rose to a record high in August, the latest Hong Kong government data showed yesterday, raising the specter of a worsening of 1997 housing bubble. The primary index for measuring private property prices rose for the seventh consecutive month to 210.6 in August, up 2.2 percent from July. It now stands at 21.8 percent higher than the 1997 peak of 172.90, the Rating and Valuation Department said. The rental index also gained, rising 1.24 percent from July to a record high of 145.50 - compared to 139.20 in 1997. Andy Kwan Cheuk-chiu, a member of the Long Term Housing Strategy Steering Committee, said he sees risks building in the market that are similar to 1997, when Hongkongers engaged in panic-buying amid soaring prices.

Evening Recommendations  
Piper Jaffray:

• Raised (RL) to Overweight, target $182.
• Raised (ANF) to Overweight, target $40.

Night Trading

• Asian equity indices are -1.75% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 134.0 +3.75 basis points.
• Asia Pacific Sovereign CDS Index 111.0 +1.75 basis points.
• FTSE-100 futures -.30%.
• S&P 500 futures -.01%.
• NASDAQ 100 futures +.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (COST)/1.31
• (PGR)/.26
• (HST)/.20
• (RT)/.07

Economic Releases
10:00 am EST

• Wholesale Inventories for August are estimated to rise +.4% versus a +.7% gain in July.

2:00 pm EST

• Fed's Beige Book.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Fisher speaking, Fed's Tarullo speaking, Fed's Kocherlakota speaking, Italian auction/industrial production data, 10Y T-Note auction, weekly MBA mortgage applications report, JOLTs Job Openings for August, Australian unemployment rate and the US Commerce Dept. decision on China solar dumping could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.