Thursday Watch

Evening Headlines
Bloomberg: 

• Spain Banks Face More Losses as Worst-Case Scenario Turns Real. Spain’s banks face more loan losses as the pace of an economic slump risks turning a worst-case scenario dismissed in stress tests into reality. Bad loans as a proportion of total loans reached a record 9.86 percent, or 169.3 billion euros ($222.1 billion), in July, and may rise further when the Bank of Spain publishes data for August at about 10 a.m. in Madrid. The ratio, which has risen for 16 straight months, climbed from 0.72 percent in December 2006 before Spain’s property boom turned to bust. Spanish bank stress tests by management consultants Oliver Wyman have factored in an economic contraction totaling 6.5 percent between 2012 and 2014 in an adverse scenario that the government and Bank of Spain said has a probability of about 1 percent. Analysts at Nomura and Citigroup disagree, saying spending cuts and economic conditions mean the worst-case outcome already looks feasible. “You can’t attach a 1 percent probability to a scenario that already looks realistic,” Silvio Peruzzo, a European area economist at Nomura in London, said in a telephone interview yesterday. Spain’s gross domestic product will shrink by 6.2 percent between 2012 and 2014, he estimated. Spain’s request for 100 billion euros of European Union financial aid to shore up its banks is increasing concern about the nation’s growing liabilities.
• U.S. to Get Downgraded Amid Fiscal ‘Theater,’ Pimco Says. The sovereign credit rating of the U.S. will be cut as “fiscal theater” plays out in the world’s biggest economy, according to Pacific Investment Management Co., which runs the world’s largest bond fund. “The U.S. will get downgraded, it’s a question of when,” Scott Mather, Pimco’s head of global portfolio management, said today in Wellington. “It depends on what the end of the year looks like, but it could be fairly soon after that.” 
• Lenovo Sees Global PC Slowdown as Reason to Go Into Smartphones. Lenovo Group Ltd. (992) said slowing demand in the personal-computer market, where it overtook Hewlett-Packard Co. (HPQ) as the global leader last quarter, is good reason for the company to expand into smartphones. The PC maker is already the second-largest smartphone maker in its home market of China and plans to capture the top spot, surpassing Samsung Electronics Co., Milko Van Duijl, Lenovo’s president for the Asia-Pacific and Latin America regions, said in an interview with Bloomberg Television today. 
• Chinese Company May Still Pursue A123(AONE) After Bankruptcy. The Chinese auto-parts maker that previously bailed out A123 Systems Inc., the U.S. electric-car battery maker that filed for bankruptcy protection this week, said it’s still interested in taking over the company. The bankruptcy filing may turn A123 into a more attractive investment because the court proceedings would clear out legal risks, Ni Pin, president of Wanxiang Group Corp.’s U.S. operations, said in a phone interview yesterday. The automotive business assets that A123 announced this week it would sell to Johnson Controls Inc. are separate from what Wanxiang had targeted, Ni said. 
• EBay(EBAY) Forecast Misses Some Estimates Ahead of Holidays. EBay Inc. (EBAY), the world’s largest online marketplace, forecast fourth-quarter revenue that may miss some analysts’ estimates as sales growth slows heading into the holiday season. “There are uncertainties still at this point regarding consumer spending over the holidays,” said Colin Sebastian, an analyst at Robert W. Baird & Co., who has an outperform rating on EBay. “There are event-driven uncertainties, such as elections, the fiscal cliff, debt issues in Europe.” 
• Moore Capital’s Coffey Bows Out as Markets Stymie Funds. Moore Capital Management LLC’s Greg Coffey is calling it quits amid markets that have proved difficult for even the most nimble hedge-fund investors. The 41-year-old told investors yesterday in a letter that he’s leaving the hedge-fund industry after a trading career spanning almost two decades. He plans to spend more time with his family and in his home country Australia. 
• Obama Pursuing Leakers Sends Warning to Whistle-Blowers. Eric Holder, attorney general under President Barack Obama, has prosecuted more government officials for alleged leaks under the World War I-era Espionage Act than all his predecessors combined, including law-and-order Republicans John Mitchell, Edwin Meese and John Ashcroft. The indictments of six individuals under that spy law have drawn criticism from those who say the president’s crackdown chills dissent, curtails a free press and betrays Obama’s initial promise to “usher in a new era of open government.” “There’s a problem with prosecutions that don’t distinguish between bad people -- people who spy for other governments, people who sell secrets for money -- and people who are accused of having conversations and discussions,” said Abbe Lowell, attorney for Stephen J. Kim, an intelligence analyst charged under the Act.

Wall Street Journal: 

• Exchange at Debate Escalates Libya Feud. Mitt Romney's extended argument with President Barack Obama over Libya Tuesday night sets up a potentially dramatic moment next Monday, when the two men meet again to discuss American foreign policy in the final presidential debate. Mr. Romney questioned in Tuesday's event in Hempstead, N.Y., the administration's shifting and inconsistent accounts of the Sept. 11 attack on the U.S. consulate in Benghazi, Libya, which claimed the lives of U.S. Ambassador Christopher Stevens and three other Americans.
• Iran Renews Cyberattacks on U.S. Banks. Iranian hackers renewed a campaign of cyberattacks against U.S. banks this week, targeting Capital One Financial Corp. and BB&T Corp. and openly defying U.S. warnings to halt, U.S. officials and others involved in the investigation into the attacks said. The attacks, which disrupted the banks' websites, showed the ability of the Iranian group to sustain its cyberassault on the nation's largest banks for a fifth week, even as it announced its plans to attack in advance. 
• FBI Foils New York Fed Bomb Plot. A Bangladeshi man was arrested Wednesday and charged with trying to detonate a 1,000-pound car bomb outside the Federal Reserve Bank of New York, a target he chose in a bid to disrupt the U.S. economy, authorities said. Quazi Mohammad Rezwanul Ahsan Nafis was taken into custody in a lower Manhattan hotel room after repeatedly using a cellphone to try to detonate material that he believed was a bomb in a van parked outside the New York Fed, officials said. 
• Gramm and Solon: Can Government Benefits Turn an Election? This election will test the relative power of private-sector aspirations versus public-sector dependence.
• Henninger: The Un-President. Barack Obama shows an unerring instinct for policy deniability.

CNBC: 

• Global Economy: When China Sneezes. To this day, Chinese people of a certain age can recite a slogan from Mao Zedong’s Great Leap Forward campaign that exhorted the masses to “overtake Britain and match America” in steel production. That disastrous attempt to industrialize in the late 1950s led to the worst man-made famine in history – one that few outside the country knew about because China was so isolated from the rest of the world. More than 50 years later, China is so integrated into the global economy that even relatively minor shifts in its domestic production or spending can have a big impact on the other side of the world. “China can transmit real shocks widely,” the International Monetary Fund said in a recent report, “whether these originate domestically or elsewhere.” 
• Cyprus Expects Swift Bailout as S&P Cuts Deeper to Junk. Cyprus said on Wednesday it expected talks to start with lenders on badly needed aid next week, as ratings agency Standard & Poor's pushed it deeper into junk territory, implying domestic political expediency lay behind a delay in clinching a deal.

Zero Hedge: 

• Full FBI Statement On Arrest Of Fed-a-Bomber Suspect Quazi Nafis, Who Worked "On Behalf Of al Qaeda".
• Chinese Goldilocks GDP: Q3 Economy Goalseeked Just As Expected At 7.4%.
• 'Shadow Banking' In China.
• Housing Starts And Permits: Euphoria May Be Premature.
• Och-Ziff Calls Top Of "REO-To-Rental", And Distressed Housing Demand, With Exit Of Landlord Business.

Business Insider: 

• Alleged 9/11 Mastermind Blasted 'War On Terror' Policies In Court While Wearing A Camo Vest.
• New Investment Vehicle Lets Investors Bet On Mortgages With Insane 16x Leverage.

Reuters: 

• Corporate cutbacks hold back Amex(AXP) profit. American Express Co's third-quarter profit rose only marginally and spending growth remained muted for the second quarter in a row as corporate executives cut spending on travel and entertainment. Expense accounts have come under greater scrutiny as companies look to cut costs to protect profit margins, hurting the credit card lender, which gets more than a quarter of its U.S. billed business from corporate customers. Amex shares dipped 1 percent in after-hours trading after it reported a modest 1 percent rise in quarterly profit. Travel and entertainment volumes grew 4 percent, the slowest rise this year and far below the 12 percent growth seen a year earlier. 
• Japan ministers visit shrine for war dead. Japan's land minister and postal minister visited a controversial shrine for war dead on Thursday in a move which could further strain relations between neighboring China and Korea, already tense over territorial disputes. The two ministers' pilgrimage to the Yasukuni Shrine, seen by many in the region as a symbol of Japan's war-time militarism, came a day after Japan's main opposition party leader and possible next prime minister, Shinzo Abe, visited there. 
• Solyndra presses for bankruptcy plan OK over US objection. Failed solar panel maker Solyndra pressed a federal judge on Wednesday to approve its plan to end its politically charged bankruptcy over objections by the U.S. government, which argued the plan was being used by investors to dodge taxes. Critics say government involvement in the company has cost taxpayers twice: for a $528 million government loan, and for tax breaks potentially worth $340 million that will go to venture capitalists. 
• Steel Dynamics'(STLD) profit plunges. Steel producer and metals recycler Steel Dynamics Inc's third-quarter profit plunged 77 percent as global economic uncertainty cut into steel shipments. Profit fell more than 50 percent for the third straight quarter. Steel prices have been depressed in recent months due to the lack of a strong recovery in steel demand in China -- the world's largest producer and consumer of steel -- along with a persistently oversupplied market. The benchmark 62-percent grade iron ore index fell 22 percent in the June to September period. Although prices have recovered from a three-year low of below $87 last month, they are still 25 percent below this year's high of $149.40. "We believe volumes could continue to be challenged in the fourth quarter, as fluctuations in immediate customer needs and hesitancy for customers to carry inventory persists," Chief Executive Mark Millett said in statement. Global demand for steel will slow next year because of weaker consumption growth in China and uncertainties from the European debt crisis, according to the World Steel Association.
• Greece faces anti-austerity shutdown as EU meets. Greek workers will walk off the job for the second time in three weeks on Thursday, hoping to show EU leaders meeting in Brussels that a new wave of wage and pension cuts will only worsen the plight of a people worn down by five years of recession. Mired in its worst downturn since World War Two, Greece is preparing 11.5 billion euros of cuts to satisfy the "troika" of the European Commission, European Central Bank and IMF, and secure the next instalment of its 130-billion-euro bailout. "Just once, the government ought to reject the troika's absurd demands," said Yannis Panagopoulos, head of the GSEE private sector union, one of two major unions that represent about 2 million people, or half of Greece's workforce. "Agreeing to catastrophic measures means driving society to despair and the consequences as well as the protests will then be indefinite," he said.

Asahi:

• Toyota to Maintain Lower Production in China. The company will maintain lower production in China for the rest of this year due to deterioration in Japan-China relations, citing plans presented to business partners, including parts makers. The company likely to have lowered produciton by 60% at its Guangzhou plant in China in Oct.

Nikkei:

• Japanese TV Sales in China Fall During Holiday. Sales at eight makers fell combined 40% from year-earlier during China's National Day holiday, citing All View Consulting. Sharp TV sales fell 50%, Sony 40%, citing All View.Market share fell to 18% vs. year-earlier 30%. Chinese maker share rose to 67% from 59%.

China Securities Journal:

• Shanghai to Expand Checks on Home Purchase Limit. Shanghai will continue to increase checks on the implementation of home purchase limits, citing Liu Haisheng, director of the city's housing support and building administration bureau. Shanghai will curb speculative housing demand, the report cites Liu as saying.

WantChinaTimes:  

• China's power consumption slows further. China's power consumption growth slowed further in September as factory activity and industrial output showed weaker increases amid the economic downturn. The National Energy Administration (NEA) said Wednesday that the China's total electricity consumption grew only 2.9% from a year earlier to 405.1 billion kilowatt hours. The growth was 0.7 of a percentage point lower than August and 9.3% lower than the September 2011 figure, according to NEA data.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.0 -8.5 basis points.
• Asia Pacific Sovereign CDS Index 95.5 -3.75 basis points.
• FTSE-100 futures +.14%.
• S&P 500 futures unch.
• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PPG)/2.20
• (BSX)/.11
• (CY)/.19
• (LH)/1.74
• (LUV)/.12
• (BBT)/.72
• (DO)/1.02
• (FITB)/.39
• (KEY)/.21
• (PM)/1.39
• (TRV)/1.60
• (BAX)/1.14
• (MS)/.25
• (VZ)/.64
• (ADS)/2.23
• (UNP)/2.18
• (RHI)/.38
• (CMG)/2.29
• (COF)/1.68
• (SNDK)/.34
• (MSFT)/.56
• (GOOG)/10.65
• (RVBD)/.25
• (GPC)/1.12
• (NUE)/.43 

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 365K versus 339K the prior week.
• Continuing Claims are estimated to rise to 3275K versus 3273K prior.

10:00 am EST

• Philly Fed for October is estimated to rise to 1.0 versus -1.9 in September. 
• Leading Indicators for September is estimated to rise +.2% versus a -.1% decline in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The EU Leaders Summit, Greek Parliament vote on austerity measures, Greek union strike, Bloomberg Economic Expectations Index for October, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Higher into Final Hour on Falling Eurozone Debt Angst, Short-Covering, Less Economic Pessimism, Financial/Homebuilder Sector Strength

Broad Market Tone:

• Advance/Decline Line: Modestly Higher
• Sector Performance: Mixed
• Volume: Below Average
• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 15.03 -1.25%
• ISE Sentiment Index 118.0 -7.09%
• Total Put/Call .78 -4.88%
• NYSE Arms .62 -22.05%

Credit Investor Angst:

• North American Investment Grade CDS Index 89.73 bps -2.70%
• European Financial Sector CDS Index 153.24 bps -9.89%
• Western Europe Sovereign Debt CDS Index 104.76 bps -16.27%
• Emerging Market CDS Index 209.38 bps -1.26%
• 2-Year Swap Spread 9.0 -.25 basis point
• TED Spread 21.5 -1.75 basis points
• 3-Month EUR/USD Cross-Currency Basis Swap -24.25 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .11% +2 basis points
• Yield Curve 151.0 +6 basis points
• China Import Iron Ore Spot $115.40/Metric Tonne +2.49%
• Citi US Economic Surprise Index 55.50 +3.1 points
• 10-Year TIPS Spread 2.48 +2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +76 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Slightly Lower: On losses in my Medical/Tech sector longs and index hedges
• Disclosed Trades: None
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Spain’s Aid From EU Can Be Short of Full Bailout, Katainen Says. Finnish Prime Minister Jyrki Katainen said any financial assistance for Spain would stop short of a full bailout, as French President Francois Hollande backed the country’s demand for clarity over European aid. European Union leaders must show solidarity should Spain request funds, though assistance could take the form of a “precautionary” program, Katainen said today at a conference in Bucharest. Hollande underscored a divide with Germany as government chiefs prepared to gather for a summit in Brussels tomorrow, saying that measures taken by Spain in return for any help should be laid out in detail.
• Singapore September Exports Unexpectedly Decline on Electronics. Singapore’s exports unexpectedly declined for a second month in September as manufacturers sold fewer electronics and pharmaceuticals to customers abroad. Non-oil domestic exports slid 3.4 percent from a year earlier, after a revised 10.7 percent drop in August, the trade promotion agency said in a statement today. The median of 16 estimates in a Bloomberg News survey was for a 1.2 percent gain. Singapore’s central bank held off from easing monetary policy last week even as the gross domestic product contracted in the third quarter, and the Trade Ministry said growth will be weighed down for the rest of the year by a “subdued” world economy. The International Monetary Fund this month cut its projections for global expansion this year and next, saying it sees “alarmingly high” risks of a steeper slowdown. “Continued weakness in leading indicators like the SEMI book-to-bill ratio and global PMIs suggested continued volatility in exports and manufacturing can be expected ahead,” Leslie Tang, an economist at OSK-DMG in Singapore, said before the report, referring to semiconductor orders and shipments and purchasing managers indexes. Singapore’s electronics shipments by companies such as Venture Corp. fell 16.4 percent in September from a year earlier, after slipping 11 percent the previous month. 
• Russian Investment Unexpectedly Fell First Time in 18 Months. Russian investment unexpectedly slid last month for the first time since March 2011 as uncertainty over the economy prompted businesses to reduce spending. Fixed-capital investment fell 1.3 percent in September compared with a year earlier, the Federal Statistics Service in Moscow said in an e-mailed statement today. Economists predicted an increase of 2.1 percent, according to the median of 15 forecasts in a Bloomberg survey. 
• Japan Stimulus Restricted as Diet Standoff Prevents Extra Budget. Japan’s government plans to tap discretionary budget funds to counter an economic slowdown as a legislative stalemate threatens to leave the Noda administration without cash as soon as next month.  
• Mack: I'm Disappointed with Obama's Divisive Nature. (video)  
• CMBS Faces Risk of ‘Disruptive Shocks’ Regulators Told. Commercial mortgage-backed securities have more risk than last year as landlords need to repay maturing debt and vacancies remain elevated, according to an analysis prepared for insurance regulators. “Downside risk for CMBS relative to last year’s assumptions has clearly increased,” according to a report for the National Association of Insurance Commissioners and posted on the group’s website. The market is “proving itself subject to highly disruptive shocks” and has less time to deal with the coming wave of loan maturities, consultants and NAIC staff said in the report.
• ThinkEquity Closing Stock-Trading Unit as Volumes Decline. ThinkEquity LLC is closing its stock-trading business today amid a market slump and preparing to transfer its remaining investment-banking unit to another firm, Chief Executive Officer Greg Wright said. ThinkEquity, which employs a total of about 100 people, is determining how many jobs will be cut, he said in a telephone interview. Wright said another firm, which he declined to identify, has offered to take over San Francisco-based ThinkEquity’s investment-banking business and hire some workers. Details may be announced as soon as tomorrow, he said. 
• Home Starts Rise to Highest In Four Years. Beginning home construction jumped last month to an 872,000 annual rate, the fastest since July 2008 and exceeding all forecasts in a Bloomberg survey of economists, Commerce Department figures showed today in Washington.

Wall Street Journal: 

• Debate Hotspots: Energy, Benghazi, Taxes. 
• Militant Suspected in Attack in Libya Remains At Large. The founder of Libya's Islamist militia Ansar al-Sharia was at the U.S. consulate compound during the deadly attack here, Libyan officials say, but he remains free a week after those allegations were disclosed to Libyan political leaders and U.S. investigators. Ahmed Abu Khattalah—who current Libyan officials and former Islamic militants describe as propagating an al Qaeda-style ideology—was seen during the Sept. 11 attack at the diplomatic mission where two of the four Americans died, said two senior Libyan security officials familiar with the investigation.
• Violent Crimes Rose by 18% Last Year. The number of violent crimes rose by 18% in the U.S. last year while property crimes went up by 11%, the government reported Wednesday. It was the first year-to-year increase for violent crime since 1993, marking the end of a long string of declines. 
• Amazon(AMZN) Sets Sites on Kids. 
• A President Without a Plan. A more spirited Obama, but he still has no agenda for the next four years.

MarketWatch.com: 

• Intel(INTC), IBM(IBM) spark corporate-demand jitters. Cisco(CSCO) gets downgraded, citing signs of weaker demand.

CNBC: 

• Who's Moving In? Adult Kids, Aging Parents. Almost a third of homeowners expect their grown children or aging parents to eventually move in with them, according to a survey by one of the nation's largest home builders. About one in seven say they already have a "boomerang kid" — an adult child who moves back home — or elderly parent living under their roof.  
• Apartment Bubble Inflating Fast.

Zero Hedge: 

• Bank Of America(BAC) Gimmicks Continue - Chargeoffs Soar To Highest In A Year, As Loan Loss Release Surges. 
• Spanish Bonds At Six Month Highs As 'Half Pregnant' Bailout Looms. (graphs) 
• Germany Wants To Be Europe's Currency Tsar. 
• Once "Jollying The Markets" With "Faith, Hope And Charity" Fails, What Comes Next: A Primer On Europe's Next Steps. 
• Taxpayers To Recover $0 On Solyndra.

Business Insider:  

• GALLUP: Mitt Romney Now Has A Gigantic 6-Point Lead Over Obama.
• Forget Libya, The Syrian Conflict Is What's Going To Make The Middle East Explode.
• Last Night's Debate Showed Obama Doesn't Have Any Solutions, He Just Doesn't Like Romney's.
• UH-OH: The Official Economic Indicators Are Showing Early Signs Of Contraction.
• JIM ROGERS: The China Boom Could All Come Apart Over Water.

Reuters:

• Iran further expanding enrichment capacity - diplomats. Iran is believed to be further increasing its uranium enrichment capacity at its Fordow plant buried deep underground, Western diplomats say, in another sign of Tehran defying international demands to curb its disputed nuclear programme. 
• CDC says deaths rise to 19 in worsening meningitis outbreak. 
• CSX(CSX) sees soft utility coal demand continuing into 2013.

Financial Times: 

• Europe banking supervisor plan ‘illegal’. A plan to create a single eurozone banking supervisor is illegal, according to a secret legal opinion for EU finance ministers that deals a further blow to a reform deemed vital to solving the bloc’s debt crisis. A paper from the EU Council’s top legal adviser, obtained by the Financial Times, argues the plan goes “beyond the powers” permitted under law to change governance rules at the European Central Bank.

HIB Bulletin:

• German Chancellor Angela Merkel aims to thwart expansion of the EU's 2014-2020 budget that's now being forged by leaders of the 27-state trade bloc, citing German negotiator Michael Link, a deputy foreign minister.

Welt:

• Schulz Rejects EU Intervention in National Budgets. No EU minister should be able to modify the budget of a member country, citing European Parliament President Martin Schulz. Schulz rejects demand from German Finance Minister Wolfgang Schaeuble.

Vanguardia: 

• Germany is pressuring Italy to request European aid alongside Spain so that the government of Prime Minister Mario Monti doesn't reap the benefit of lower borrowing costs without being tied to tougher economic reforms, citing European and Spanish officials. Italy is resisting the proposal.

Estado de S. Paulo:

• Brazil Auto Sales Fall 11% Through Mid-Oct from Mid-Sept. Sales totaled 135,700 units.

ShanghaiDaily.com:

• Shanghai to Continue Home Curbs. SHANGHAI will continue to strictly enforce its property curbs to fight speculation even as it proceeds with its affordable housing program for low to mid-income households, a senior government official said yesterday. The measures, including home buying curbs and differentiated mortgage policies, will remain, Liu Haisheng, director of the Shanghai Housing Support and Building Administration Bureau, told a municipal conference held yesterday."In general, tightening measures aimed at curbing speculative demand have proved effective so far, and we will spare no effort to retain them," Liu said.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.60%

Sector Underperformer:

• 1) Education -11.33% 2) Computer Services -4.70% 3) Disk Drives -1.64%
  

Stocks Faling on Unusual Volume:

• FTNT, FIRE, ASML, LFC, MLNX, IBM, VALE, BLOX, APOL, CHKP, HCP, ISRG, ABT, PNC, AVG, STRA, IBM, DGX, ALGN, LNN, ORLY, STJ, SWK, CMA, RECN, TXT, DOV, INTC, DV, STJ and DG

Stocks With Unusual Put Option Activity:

• 1) MRO 2) APOL 3) CSX 4) CHKP 5) IBM
  

Stocks With Most Negative News Mentions:

• 1) ACN 2) DBD 3) APOL 4) IP 5) PNC
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.65%

Sector Outperformers:

• 1) Homebuilders +3.61% 2) Biotech +1.28% 3) Airlines +1.09%
  

Stocks Rising on Unusual Volume:

• MANH, CYMI, HWD, BZH, CREE, MTB, CNC, DF, URI, KBH, BK and ORI

Stocks With Unusual Call Option Activity:

• 1) OSG 2) USG 3) ACAS 4) DF 5) KR
  

Stocks With Most Positive News Mentions:

• 1) CHRW 2) NOC 3) JNJ 4) KO 5) BK

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Retirement No Option for Older Workers in Europe’s Crisis. Jean-Luc Guillaume always presumed he’d retire at about 60, just like his civil-servant father. One year from reaching that age, the biology researcher has no plans to stop working. Cutbacks to France’s retirement benefits, the European financial crisis and the cost of a recent separation have stretched out his horizons. “Financially, retirement just isn’t an option,” said Guillaume at a street demonstration against job cuts at his employer, Sanofi SA (SAN), that he had traveled to Paris from his home in Toulouse to attend. “I’m looking at 66 at the earliest.” 
• Shipping Mess Prompts Fuel Contango Amid Go-Slow: Energy Markets. For the first time in 21 months, fuel oil markets are indicating that it's cheaper to buy supplies sooner rather than later as China's imports slump and shippers reduce vessel speeds to cut costs. Swaps for November were 50 cents a metric ton  less than December in Singapore on Oct. 12, the first time since January 2011 that the market has gone into a state of so-called contango, according to data from PVM Oil Associates Ltd. Chinese demand is shrinking just as vessels operated on behalf of commodities companies including Cargill Inc., the biggest charter of dry-bulk ships, travel at the slowest speeds possible to cut fuel expenses. That's depressing prices in Singapore, the world's largest market for so-called bunkers, where sales have slid to the lowest market for so-called bunkers, where sales have slid to the lowest level in seven months.
• Chinese Show Deepening Concern at Officials’ Corruption. Chinese people are increasingly worried about growing income inequality and official corruption, according to a Pew Research Center survey released weeks before a once-a-decade leadership transition. Forty-eight percent of 3,177 adults surveyed said the gap between rich and poor in China is a “very big problem,” up seven percentage points from a 2008 survey, the Pew Global Attitudes Project found. Fifty percent said official corruption was a very big problem, compared with 39 percent four years ago. The poll had a margin of error of plus or minus 4.3 percentage points. 
• IBM(IBM) Revenue Falls Short With Weaker Euro, Hardware Sales. International Business Machines Corp. (IBM), the biggest computer-services company, fell as much as 3.8 percent in extended trading after reporting third-quarter revenue that fell short of estimates as clients delayed orders. The shares (IBM) dropped 3.5 percent to $203.72 at 6:48 p.m. in New York after trading as low as $203. IBM cited an economic slowdown, especially in North America, that caused software deals to be pushed back and kept customers from signing up for business technology services packages. “The actual macro environment must be weaker than we thought,” said Josh Olson, an analyst with Edward Jones & Co. in Des Peres, Missouri. With biggest competitor Hewlett-Packard Co. (HPQ) restructuring, “you’d think there would be opportunity there for some gains. The revenue was disappointing.” “It was really a falloff that we saw in our GBS business, number one, and in our software business, number two,” Loughridge said, referring to Global Business Services. He attributed the software slowdown to a handful of deals that didn’t take place. “We thought we had those through the end of the quarter,” he said.
• Citigroup(C) Outlook Cut to Negative by Moody's as Pandit Departs. Citigroup Inc. had its credit-rating outlook cut to negative by Moody’s Investors Service, which cited the resignations today of Chief Executive Officer Vikram Pandit and Chief Operating Officer John P. Havens. “The negative outlook reflects the risk that this unexpected management change will negatively affect Citigroup’s ongoing efforts to install improved risk-management practices throughout the firm,” the ratings firm said in a statement on the New York-based lender. 
• Jefferies(JEF) Downgraded by Moody’s to One Level Above Junk. Jefferies Group Inc. (JEF) had its credit rating cut to one level above junk by Moody’s Investors Service, which cited concern that the New York-based investment bank may struggle to manage risk after its expansion. Jefferies was reduced to Baa3, the lowest investment grade, from Baa2, the ratings firm said today in a statement. 
  

Wall Street Journal: 

• GOP Presses Hard Over Libya Attack. The issue of the Sept. 11 assault on the U.S. consulate in Benghazi is expected to be pressed by GOP presidential candidate Mitt Romney through the duration of the campaign. The two men clashed over Libya Tuesday night at their debate in Long Island, N.Y., with Mr. Obama accepting responsibility for the first time for security lapses that led to the deaths. Meanwhile, leading Republican lawmakers, while offering Mrs. Clinton some praise for her forthrightness, are still pushing for an independent commission, which was established by her office to investigate the attack, to complete its work before the Nov. 6 presidential vote. That appears unlikely.
• Romney, Obama Trade Barbs Over Libya Attack. (video)
• Obama, Romney Fight Over Oil Drilling. (video)
• Interactive: Grade the candidates on their performance and more.
• Spain's Rajoy Says Don't Believe Credit-Line Speculation. Spanish prime minister told German Chancellor Angela Merkel on telephone call "not to believe everything you hear" about Spain requesting line of credit from Europe's bailout mechanism, citing a person in the room when Merkel told German lawmakers about the call. 
• Spain Aid Faces Diplomatic Tangle. A potential Spanish request for financial aid is becoming caught up in tangled diplomacy between euro-zone capitals, despite Madrid's new willingness to push ahead. A day after a senior Spanish official told reporters that German concerns were preventing Madrid from seeking assistance, German officials insisted Spain hadn't indicated it wants aid. Italy, meanwhile, continued to urge Spain to apply for help in the hope that the step would ease market pressure on its own bonds. Germany worries that a request may have the opposite effect, by fanning investor fears that Italy will be next in line to need a bailout.
• Postal Service Hits Borrowing Limit. The U.S. Postal Service in September hit its $15 billion borrowing limit from the U.S. Treasury for the first time in its history, leaving the agency with only the revenue it takes in from selling stamps, shipping and other services to cover its enormous operating costs. The Postal Service has added $2.4 billion to its debt since June 30, pushing the agency to its borrowing cap, a spokesman said Tuesday.
• Electric Car Crash. Obama's green energy industrial policy turns up in Chapter 11. Mitt Romney quipped in the first Presidential debate that the problem with the Obama Administration's green energy investing isn't that it tried to pick winners and losers, but that "you pick the losers." He was being generous. Another big green Administration favorite went belly-up on Tuesday with the Chapter 11 filing by battery-maker A123 Systems Inc(AONE).

Fox News: 

• Benghazi Timeline - Fox News Special Report with Bret Baier - October. (video)

MarketWatch.com:

• Vote: Who won the presidential debate?

CNBC: 

• Details of Greg Smith's Goldman Sachs Book Are Leaked.

Zero Hedge:

• Moody's Refuses To Junk Spain Ahead Of US Election, Raffirms Baa3 Rating - Full Text.
• Hours Ahead Of The Presidential Debate, Total US Debt Hits Record $16.19 Trillion. 
• Why Intel(INTC) Better Not Be Economic Bellwether This Time Around. (graph)

Business Insider:

• CBS Instant Poll, 65% says Romney won on the issue of the economy. 34% say Obama won on the economy. 
• The Recent Collapse In Business Confidence Is Stunning. Businesses are becoming increasingly cautious as the fiscal cliff looms. Morgan Stanley just published its October read on its proprietary Business Conditions Index and it collapsed to 41% from 55% in September.
• The Most Ridiculous Government Expenses Of The Year. 
• HOISINGTON: Quantitative Easing Has Been Devastating For American Households.

Reuters: 

• INSIGHT-Brazen Islamic militants showed strength before Benghazi attack. In the months before the deadly attack in Benghazi, Libya, U.S. and allied intelligence agencies warned the White House and State Department repeatedly that the region was becoming an increasingly dangerous vortex for jihadist groups loosely linked or sympathetic to al Qaeda, according to U.S. officials. Despite those warnings , and bold public displays by Islamist militants around Benghazi, embassies in the region were advised to project a sense of calm and normalcy in the run-up to the anniversary of the Sept. 11 attacks in the United States. So brazen was the Islamist presence in the Benghazi area that militants convened what they billed as the "First Annual Conference of Supporters of Shariah (Islamic law)" in the city in early June, promoting the event on Islamist websites. Pictures from the conference posted on various Internet forums featured convoys flying al Qaeda banners, said Josh Lefkowitz of Flashpoint-Intel.com, a firm that monitors militant websites. Video clips showed vehicles with mounted artillery pieces, he added. A research report prepared for a Pentagon counter-terrorism unit in August said the Benghazi conference brought together representatives of at least 15 Islamist militias. Among the paper's conclusions: these groups "probably make up the bulk of al Qaeda's network in Libya."
• Environmentalists sue California to stop fracking. Environmental groups sued the state of California on Tuesday in an effort to stop hydraulic fracturing as regulators attempt to devise new rules for the controversial oil and gas extraction practice. The lawsuit accuses the regulator, the California Department of Conservation, Division of Oil, Gas, and Geothermal Resources, with failing to evaluate the risks, even though fracking was used for more than 600 wells in the state last year. 
• Intuitive Surgical(ISRG) procedure growth disappoints. Intuitive Surgical Inc on Tuesday lowered its full-year forecast for procedure growth after posting a disappointing growth rate of 22 percent for surgeries using its high-priced da Vinci robots in the third quarter. Intuitive's shares dropped more than 4 percent after it reported its third quarter results. The company said it now expects 2012 procedure growth of 24 percent, down from its prior view of 25 percent to 27 percent.
• Fortinet(FTNT) cuts full-year forecast; shares sink. Network security products maker Fortinet Inc cut its full-year forecast, hurt by weak demand in southern Europe and slow growth in China, sending its shares down 18 percent.

TheAge.com:

• Rio(RIO) to Cut 30% of Workforce in Europe, Union Official Says.

China Business News:

• China Regulators Consider 10% Income Tax for QFII. Tax rate of 10% may be applied to income earned inside China by qualified foreign institutional investors.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are +.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.50 -3.5 basis points.
• Asia Pacific Sovereign CDS Index 99.25 -10.25 basis points.
• FTSE-100 futures -.09%.
• S&P 500 futures -.16%.
• NASDAQ 100 futures -.29%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CMA)/.66
• (NTRS)/.74
• (USB)/.73
• (DGX)/1.18
• (HAL)/.67
• (SWK)/1.45
• (MTB)/1.86
• (BLK)/3.32
• (ABT)/1.28
• (BK)/.54
• (BAC)/.16
• (PEP)/1.16
• (STJ)/.81
• (PJC)/.30
• (SYK)/.98
• (XLNX)/.41
• (EBAY)/.54
• (AXP)/1.09
• (LRCX)/.41
• (ETH)/.29
• (STLD)/.12

Economic Releases
8:30 am EST

• Housing Starts for September are estimated to rise to 770K versus 750K in August.
• Building Permits for September are estimated to rise to 810K versus 803K in August.

10:30 am EST

•  Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,500,000 barrels versus a +1,672,000 barrel gain the prior week. Distillate supplies are expected to fall by -1,500,000 barrels versus a -3,177,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +500,000 barrels versus a -534,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.25% versus a -1.5% decline the prior week.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The China Retail Sales/Production/GDP data, China Home Price data and the weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.