Today's Headlines

Bloomberg: 

• Banks’ Off-Balance-Sheet Risks Come Under Basel Scrutiny. Banks are set to face a broad international leverage limit that will catch off-balance sheet risks and prevent them from hiding their debt, according to the head of the Basel Committee on Banking Supervision. The Basel group is seeking to put a ceiling on indebtedness that will prove robust no matter how complicated a bank’s business model, Stefan Ingves, its chairman, said in an interview. 

• European Stocks Retreat as U.S. Government Shutdown Looms. European stocks declined the most in a month, trimming the best quarter in four years, as the U.S. faced the first government shutdown in 17 years and Italian Prime Minister Enrico Letta fought to save his administration. UniCredit SpA and Intesa Sanpaolo SpA (ISP), Italy’s biggest banks, dropped more than 1 percent as the nation’s benchmark FTSE MIB Index slid 1.2 percent. Rio Tinto Group led mining companies lower after a measure of Chinese manufacturing missed a preliminary estimate. Aryzta AG rallied the most in six months as the Swiss supplier of bakery products reported results that topped projections. The Stoxx Europe 600 Index fell 0.6 percent to 310.46 at the close of trading, the biggest drop since Aug. 30.

• Abe Bets It’s Different This Time With Sales Tax Rise. It’s different this time. The four most dangerous words in markets, according to former U.S. Treasury Secretary Larry Summers. With Japan set to raise its sales tax for the first time since 1997, Prime Minister Shinzo Abe’s political future rides on a different outcome than last time -- when the nation slid into a recession and the premier lost his job.

• Corn Slumps to Three-Year Low on Rising Inventory; Soybeans Drop. Corn futures plunged to a three-year low after the U.S. Department of Agriculture boosted its inventory estimate by 25 percent. Soybeans dropped to the cheapest in five weeks as supplies topped analyst estimates by 11 percent.

Wall Street Journal: 

• Budget Battle: Streaming Coverage.

• Shutting Down Emerging Markets. The Real Fallout From Washington's Impasse Could Be Felt Overseas.

Fox News:

• When clock strikes midnight, does the government really shut down? Maybe not. Washington is bracing for the clock to strike midnight, with a government shutdown expected if Congress cannot strike a budget deal -- but despite the frenzy, the government might not turn into a pumpkin right away. Everybody is talking about a midnight deadline, because that is the official time that all discretionary spending (which is the portion that Congress controls) halts as the federal government rolls over from fiscal 2013 to fiscal 2014 on Oct. 1. That doesn't mean that everything stops immediately, however.

• Director nixes Hillary documentary for CNN after pressure from Clinton aides.

CNBC: 

• Market has more to worry about than the shutdown. The U.S. government can't stay closed forever, so by definition its threat to financial markets is temporary. Other headwinds, though, could present more lasting damage. At least three and as many as five challenges face investors once the smoke clears from the bruising Washington battle over funding the government.

• Italy Faces New Elections and Economic Turmoil. (video)

Zero Hedge: 

• Boehner On Delaying Obamcare: "It's What The People Want". (video)

• Chicago PMI Jumps To 4-Month High Even As Employment Tumbles To 5-Month Low. (graph)

• Meanwhile In Italy...

• The Fed Gave Congress A Bottle Of Whiskey And The Car Keys.

• Blackstone's(BX) Private Equity Head Warns: "We Are In The Middle Of An Epic Credit Bubble".

Reuters:

• Unilever warns slowdown in emerging markets has accelerated. Anglo-Dutch consumer goods company Unilever warned on Monday that a slowdown in its emerging markets had accelerated in the third quarter and it now expects underlying sales growth of 3 to 3.5 percent in the period. Developed markets remained flat to down, it said, and overall Unilever said it was on track to meet its 2013 priorities. It attributed the emerging markets slowdown to a significant currency weakening. "We continue to grow ahead of our markets and expect underlying sales growth to improve in quarter four," Chief Executive Paul Polman said.

• Brazil central bank sees inflation high despite weak growth. Inflation in Brazil will remain stubbornly high well into 2015 even as the economy struggles to gain steam, the central bank said on Monday, raising market bets for higher borrowing costs in the future. In its quarterly inflation report, the bank lowered its 2013 inflation forecast to 5.8 percent from 6 percent previously. However, it revised its inflation view for 2014 to 5.7 percent from 5.4 percent previously and said it expects inflation at 5.5 percent in the third quarter of 2015. The bank also revised down its estimate for economic growth to 2.5 percent for this year from a previous 2.7 percent forecast. The bank sees growth keeping that pace until the second quarter of 2014.

• CBOE to increase VIX trading hours in late October.

Valor Economico:

Restructuring: Flowers slams Europe over inaction


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

• Brazil to See Credit Squeeze as Public Banks Retreat.

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

The Daily Reckoning:

• A Coming Emerging Market Crisis?

Haaretz:

• Official: Netanyahu to urge Obama not to lift sanctions on Iran. With diplomatic track gaining momentum, conversation will center on keeping up pressure on Iranian regime, in departure from usual focus on military option.

Bear Radar

Style Underperformer:

• Large-Cap Value -.54%

Sector Underperformers:

• 1) Energy -1.22% 2) REITs -1.03% 3) Agriculture -.88%

Stocks Falling on Unusual Volume:

• END, BP, PTR, RJET, AFOP, EGHT, ANGI, PNRA, CLVS, RP, SSI and ZINC

Stocks With Unusual Put Option Activity:

• 1) ACHN 2) MPC 3) CAR 4) FDO 5) XLB
  

Stocks With Most Negative News Mentions:

• 1) APC 2) XOM 3) MON 4) ORCL 5) DAL
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.62%

Sector Outperformers:

• 1) Medical Equipment +.14% 2) Oil Tankers +.09% 3) Hospitals +.06%
  

Stocks Rising on Unusual Volume:

• SOHU, KONG, HNR, REMY, RDA, FINL, CERN, HALO, NKE, NVDQ, TFSL, TSL, SWIR and BERY

Stocks With Unusual Call Option Activity:

• 1) ZIOP 2) FDO 3) IP 4) SH 5) NFX
  

Stocks With Most Positive News Mentions:

• 1) INTC 2) JCP 3) AAPL 4) M 5) FB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Government Shutdown 1 Day Away as Deal Evades Lawmakers. The Senate will reconvene tomorrow afternoon, when it will reject a House plan passed early today to delay and limit President Barack Obama’s Affordable Care Act. In response, the House would add “another provision” to the spending measure and send it back to the Senate, said Representative Kevin McCarthy, the top House Republican vote counter. The provision would “reflect the House” and would be one “the Senate can accept,” McCarthy of California said on “Fox News Sunday” without offering details. A likely option would end the government’s contribution to the health insurance of members of Congress and their staffs, as a way of testing Democrats’ willingness to make any changes to the health law, according to a leadership aide who spoke on condition of anonymity to discuss party strategy. 

• China Factory Gauge Unexpectedly Misses Preliminary Estimate. A Chinese manufacturing index (EC11CHPM) rose less than analysts forecast in September, unexpectedly weakening from a preliminary estimate in a result that casts doubt on the strength of the economy’s rebound. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics rose to 50.2 in September from 50.1 in August. The final number was less than last week’s 51.2 preliminary reading and the 51.2 median estimate in a Bloomberg News survey. A similar gauge from the government is due tomorrow.

• Rupiah Leads Emerging-Market Losses in Worst Quarter Since 2008. Indonesia’s rupiah is leading declines in emerging markets this quarter as the currency headed for its worst three-month performance since 2008 due to a record current-account deficit. Government bonds fell. The currency weakened 14.9 percent since the end of June to 11,658 per dollar as of 10 a.m. in Jakarta, the biggest loss among 24 developing-nation exchange rates tracked by Bloomberg. It fell 6.3 percent in September, the most since April 2009. 

• Asian Stocks Fall, Paring Monthly Gain, Over U.S. Budget. Asian stocks fell, with the benchmark index paring its biggest monthly gain since 2012, on concern the U.S. government is headed for a shutdown amid a budget stalemate. Toyota Motor Corp., which gets 31 percent of its revenue in North America, declined 2.6 percent. BHP Billiton Ltd., Australia’s biggest oil producer, dropped 1.4 percent as crude fell. Mizuho Financial Group Inc., Japan’s third-largest bank, lost 3.6 percent after its lending unit was penalized by Japan’s banking regulator for failing to end transactions with “anti-social” groups. The MSCI Asia Pacific Index dropped 1.4 percent to 138.87 as of 11:01 a.m. in Tokyo, with all 10 industry groups falling.

• Rubber Drops to 1-Month Low as Yen Gains on U.S. Budget Concern. Rubber dropped to the lowest level in more than a month as the Japanese currency climbed against the dollar, cutting the appeal of yen-denominated futures, amid concern the U.S. government is headed for a partial shutdown. The contract for March delivery on the Tokyo Commodity Exchange lost as much as 1.7 percent to 265.6 yen a kilogram ($2,717 a metric ton), the lowest level since Aug. 23, and was at 267 yen at 10:23 a.m. The drop pared gains for a most-active contract to 13 percent this quarter, the best rally since the three months through Dec. 31.

• Gold Bulls Raise Wagers Most in Month on Stimulus: Commodities. Hedge funds’ combined holdings in gold futures rose the most this month as continued U.S. monetary stimulus spurred investors to sell short contracts and sent prices toward the first quarterly advance in a year. The net-long position in bullion jumped 12 percent to 78,654 futures and options in the week ended Sept. 24, the most since Aug. 27, U.S. Commodity Futures Trading Commission data show. Long wagers gained 1.8 percent and short bets fell 17 percent, the biggest drop in four weeks. Combined net-long holdings across 18 U.S.-traded commodities climbed 1.7 percent, the first gain in September.

• Europe’s Record Jobless Rate Seen Resisting Recovery. Europe’s nascent economic recovery is too green to make any impact on the region’s jobs market yet, according to economists. Unemployment in the 17-nation euro area remained at a record high of 12.1 percent in August, according to the median estimate of 30 economists in a Bloomberg News survey. The European Union’s statistics office is due to publish the jobless numbers at 11 a.m. tomorrow in Luxembourg. “Europe is faced with a high level of structural unemployment and this is not going to change any time soon,” said Annamaria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. “The recovery is happening painfully slowly and that’s another reason why we’ll see jobless rates far above 11 percent well into 2015.”

Wall Street Journal:

• Government Heads Toward Shutdown. Senate Doesn't Reconvene Until Monday Afternoon, Hours Before Deadline. The nation braced for a partial shutdown of the federal government, as time for Congress to pass a budget before a Monday midnight deadline grew perilously short and lawmakers gave no signs Sunday they were moving toward a resolution. Leaders of both parties said they wanted to avoid the first federal closure since 1996, but their public appearances seemed aimed more at affixing blame for the impasse. 

• Health Law Hits Late Snags as Rollout Approaches. Technical Problems Remain as Oct. 1 Deadline Nears. Obama administration officials scrambling to get the health law's insurance marketplaces ready to open on Tuesday keep hitting technical problems, while government-funded field workers across the country say they aren't fully prepared to help Americans enroll in the program. 

• Signs Raise Threat of a Red October. In the coming month, markets face four huge tests: the Washington debt crisis, the release of September employment data, third-quarter earnings releases and the Federal Reserve’s next policy meeting. All four of these horsemen could disrupt investments and some could tank the market. Money managers hope all will be nonevents and stocks will finish the year higher. But there are no guarantees.

• How Rouhani Is Playing Obama. His conciliation strategy is intended to buy time and legitimacy to build a bomb.

Fox News:

• Israel's Netanyahu to warn US, UN about Iran's 'smiley campaign'. Just days after the first conversation between the leaders of the U.S. and Iran in 34 years was hailed as a “breakthrough” in relations between the two countries, Israeli Prime Minister Benjamin Netanyahu is taking an unpopular message to the White House and the United Nations: Don't be fooled by Tehran's “sweet talk.” Netanyahu, who contends Iran is using conciliatory gestures as a smoke screen to conceal an unabated march toward a nuclear bomb, will meet with President Obama Monday to deliver strong words of caution to the U.S.

• With shutdown just hours away, Republicans say Democrat-led Senate a no-show. The countdown to a government shutdown is now marked by hours as the Senate returns Monday afternoon to decide before midnight whether to accept the Republican House’s weekend spending-bill offer, make a counter-proposal or let the clock expire. House Republican leaders on Sunday chided Senate Majority Leader Harry Reid and others in the Democrat-led chamber for not hustling back to Capitol Hill to negotiate, after the lower chamber early Sunday morning passed its proposal, which includes a one-year delay on ObamaCare. “O Senate, where art thou,” said Tennessee Rep. Marsha Blackburn, riffing on the movie “O Brother, Where Art Thou.”

CNBC:

• Bank rules just keep getting weirder and weirder. The latest round of banking guidelines have gotten so complex that there may need to be another round to explain them.

Zero Hedge:

• House Votes To Delay Obamacare By One Year; Checks To Senate Democrats - Shutdown 'Inevitable'?

• The Government Shutdown Looms: A Q&A On What Happens Next (And Who Stays At Home).

• "90% Odds of Government Shutdown" Democrats Warn.

• Biggest Greek Crackdown In 39 Years: Leadership Of Far-Right Golden Dawn Party, Third Most Popular In Greece, Arrested.

• Breaking Bad News From The Fed’s Z1: Expansions Tend To Explode Near Current Leverage Multiples.

• Saudi Arabia "Outraged" At Obama's Peace Overtures With Syria, Iran.

• When Hope Fails: Why Italian Banks Better Be Praying Draghi Can Still Do "Whatever It Takes".

• CEO Of Italy's Largest Bank Surprisingly Resigns.

• Italy Government In Turmoil: Berlusconi's PDL Ministers Resign.

• It's A PIK Toggle Credit Bubble, But "This Time It's Different" Says Moody's. (graph)

• Can Central Bankers Be Trusted?

• The Boxed-In Fed.

• As A Result Of Obamacare, Employer-Based Health Insurance Is Becoming Extinct.

• Charting The Bubble In Multiple Expansion. (graph)

• The FBI Has Been Using Drones Domestically Since 2006.

Business Insider:

• Analyst Explains Why A Government Shutdown Could Be Sustained And Damaging.

• The NSA Is Gathering Social-Networking Data On Americans To Map Behavior.

• CHAOS IN ITALY: Prime Minister Accuses Berlusconi Of Telling 'Huge Lie' To The Country.

• North Korea's Impending Collapse: Three Grim Scenarios.

• Has Brazil Blown It?

New York Times: 

• Obamacare Is a Gigantic Shell Game. Here's where the shell game comes in: the administration says that the actual numbers of the insurance aren't important and what really matters is how much people will pay after the subsidies. But subsidies aren't free. They are paid for through higher taxes or greater deficit spending. And these taxes are a dead weight on the economy that impede economic growth. The dislocations are cascading through our economy. Millions of hourly workers are having their full-time jobs cut to part time, businesses are freezing hiring, spouses are losing coverage, major labor unions are calling for repeal and Obamacare's premium taxes and other costs are driving up the cost of insurance for everyone. This law is not ready for prime time. Congress should delay the law for a year and put together what both sides now know must be a bipartisan effort at reform that works with, rather than against, our economy.

LA Times:

• 52% of Californians want $68-billion bullet train stopped, poll finds. A majority of voters want the California bullet train project stopped and consider it a waste of money, even as state political leaders have struggled to bolster public support and make key compromises to satisfy critics, a USC Dornsife/Los Angeles Times poll found. Statewide, 52% of the respondents said the $68-billion project to link Los Angeles and San Francisco by trains traveling up to 220 mph should be halted. Just 43% said it should go forward. The poll also shows that cracks in voter support are extending to some traditional allies, such as Los Angeles-area Democrats, who have embraced the concept of high-speed rail as a solution to the state's transportation problems.

The Daily Beast:

• A Global Slaughter of Christians, but America’s Churches Stay Silent. Christians are being singled out and massacred from Pakistan to Syria to the Nairobi shopping mall. Kirsten Powers on the deafening silence from U.S. pews and pulpits.

AP:

• No. 2 nuke commander suspended amid casino probe. The No. 2 officer at the military command in charge of all U.S. nuclear war-fighting forces is suspected in a case involving counterfeit gambling chips at a western Iowa casino and has been suspended from his duties, officials said.

Der Spiegel: 

• Schaeuble Prepares Rich Tax to Woo SPD in Coalition. Germany's Finance Minister Wolfgang Schaeuble is preparing a proposal to increase maximum income tax rate to 46% to 48%.

Weekend Recommendations

Barron's:

• Bullish commentary on (MSFT), (BCO), (AMC) and (NOV).

• Bearish commentary on (SFM). 

Night Trading

• Asian indices are -1.25% to -.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 155.50 +5.5 basis points.

• Asia Pacific Sovereign CDS Index 119.25 +3.0 basis points.

• FTSE-100 futures -.83%.

• S&P 500 futures -.62%.

• NASDAQ 100 futures -.43%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CALM)/.49

• (DMND)/-.03

• (PAYX)/.43

Economic Releases
9:00 am EST

• ISM Milwaukee for September is estimated to rise to 50.0 versus 48.21 in August.

9:45 am EST

• Chicago Purchasing Manager for September is estimated to rise to 54.0 versus 53.0 in August.

10:30 am EST

• Dallas Fed Manufacturing for September is estimated at 5.0 versus 5.0 in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone CPI report, Canadian GDP report, China Manufacturing PMI, RBA rate decision and the Johnson Rice Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.

Weekly Outlook

Wall St. Week Ahead by Reuters.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on US debt ceiling/govt shutdown worries, rising European/Emerging Markets debt angst, more Mideast unrest, technical selling, earnings concerns and profit-taking. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.

Market Week in Review

S&P 500 1,691.75 -1.06%*




The Weekly Wrap by Briefing.com.

*5-Day Change