Wednesday, October 31, 2012

Stocks Falling Slightly into Final Hour on Hurricane Sandy Concerns, Rising Global Growth Fears, Rising Eurozone Debt Angst, US Election/Fiscal Cliff Worries

 Broad Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 18.79 +5.50%
  • ISE Sentiment Index 106.0 unch.
  • Total Put/Call .83 -16.16%
  • NYSE Arms .87 -45.23%
Credit Investor Angst:
  • North American Investment Grade CDS Index 99.28 bps -1.25%
  • European Financial Sector CDS Index 175.0 bps +.39%
  • Western Europe Sovereign Debt CDS Index 106.85 bps -.22%
  • Emerging Market CDS Index 234.59 bps -.29%
  • 2-Year Swap Spread 9.75 -.25 basis point
  • TED Spread 20.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -24.0 +.5 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .11% unch.
  • Yield Curve 140.0 -2 basis points
  • China Import Iron Ore Spot $119.30/Metric Tonne -.42%
  • Citi US Economic Surprise Index 48.10 -2.1 points
  • 10-Year TIPS Spread 2.50 +2 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +13 open in Japan
  • DAX Futures: Indicating +3 open in Germany
  • Slightly Higher: On gains in my Medical/Retail sector longs and index hedges
  • Disclosed Trades: None
  • Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:
  • Mid-Cap Growth -.53%
Sector Underperformers:
  • 1) Biotech -2.40% 2) HMOs -2.01% 3) Oil Service -1.92%
Stocks Faling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) LOW 2) CTSH 3) ALL 4) HIG 5) DIS
Stocks With Most Negative News Mentions:
  • 1) WU 2) HURN 3) CRNT 4) WFC 5) FB

Bull Radar

Style Outperformer:
  • Small-Cap Value -.20%
Sector Outperformers:
  • 1) Gold & Silver +1.87% 2) Education +1.13% 3) Oil Tankers +.89%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) HLF 2) ALL 3) GFI 4) RSX 5) VIXY
Stocks With Most Positive News Mentions:
  • 1) WRC 2) RRGB 3) UNH 4) HON 5) ISRG

Wednesday Watch

Evening Headlines 
  • EU Convenes on Greece as Samaras Coalition Squabbles. Euro-area finance chiefs will try to shunt Greece’s bailout plan back on track today as officials split on whether the country needs another debt writedown and Greek politicians squabble over further austerity measures. With recession biting, policy makers are again seeking ways to keep Greece in the euro and avert an exit that former Deutsche Bank Chief Executive Officer Josef Ackermann said would cost “several hundred billion” euros. Finance ministers will hold a conference call at 12:30 p.m. Brussels time and may release a statement afterwards. European officials are grappling over ways to fill Greece’s financing gap two weeks before a decision is due on whether to give the country a further round of emergency funds. While German Chancellor Angela Merkel has signaled her desire to stand behind Greece’s euro membership, Prime Minister Antonis Samaras’s coalition is still at odds over the steps needed to secure more money.
  • Monti Government Runs Into Rising Political Risks: Euro Credit. Prime Minister Mario Monti is trying to counter rising risks for Italy's public finances after an anti-austerity movement emerged as the largest political force in Sicily and his predecessor, Silvio Berlusconi, threatened to withdraw support for the government. 
  • Hollande Faces Competitiveness Calls Amid Job Cuts. Renault SA (RNO) says if President Francois Hollande wants more cars built in France, he needs to tackle the country’s high labor costs and rigid work rules.
  • Hungary Retail Debt-Sale Plan Threatens to Drain Bank Deposits. Hungary’s plan to add euro bonds to household debt offerings while aid talks stall risks starving local banks of deposits and may prolong the second recession in four years, policy makers and investors in Budapest said.
  • China Stocks Fall to One-Month Low as PetroChina Drops on Profit. Chinese stocks declined, dragging the benchmark index to a one-month low, as lower-than-estimated profit at PetroChina Co. overshadowed higher earnings at Industrial Bank Co. PetroChina, the country’s biggest oil company, sank 0.7 percent. Beiqi Foton Motor Co. (600166), China’s largest commercial- vehicle maker, slumped the most since July 2011 after reporting a loss.
  • Gasoline Supply Seen at 1990 Low on Sandy. Gasoline stockpiles on the U.S. East Coast may sink to the lowest level since at least 1990 as Hurricane Sandy moves ashore, curtailing fuel production and distribution, based on Energy Department data. Refineries accounting for 94 percent of regional processing capacity shut or reduced rates before Sandy, the largest tropical storm on record in the Atlantic, approached the East Coast yesterday. Colonial Pipeline Co., which operates the largest link between Gulf Coast refiners and East Coast distributors, planned to shut its main line delivering fuel to Philadelphia and New York Harbor late yesterday as customers shuttered operations. Prices had jumped 5.9 percent in three days, breaking the longest losing streak since 1986, as the storm headed directly for the heart of East Coast fuel refining and distribution. Gasoline inventories in the central Atlantic area are already 16 percent below a year earlier. Sandy threatens to flood and disrupt power at refineries and terminals that account for one- third of U.S. finished gasoline production, according to BNP Paribas SA.
  • New York Subway System Faces Weeks to Recover From Storm. New York’s subway system may take weeks of work and tens of billions of dollars to be restored to full service as officials assess the toll from floods, hurricane-force winds and electrical damage that crippled the most populous U.S. city’s transportation hub. “I can say unequivocally that the MTA last night faced a disaster as devastating as it has ever faced in its history,” Metropolitan Transit Authority Chairman Joe Lhota said at a news conference today.
  • Hotel Recovery Hurt as Sandy Causes Cancellations, Damage. Revenue growth at U.S. hotels, already hurt by slowing traveler demand, will be hampered further by Sandy, the superstorm that blacked out much of southern Manhattan and flooded areas along the East Coast. Starwood Hotels & Resorts Worldwide Inc. and real estate investment trusts including Host Hotels & Resorts Inc., owner of the Westin New York Grand Central, and Hilton Times Square landlord Sunstone Hotel Investors Inc. are among the companies that probably will be most affected by Sandy because of their properties in the U.S. Northeast, said Nikhil Bhalla, a senior lodging analyst at FBR & Co. in Arlington, Virginia. Room-revenue growth was “generally soft through the first three weeks of the month,” before Sandy hit, Bhalla said in an e-mail. “So I expect results for the last week of October to be notably soft.”
Wall Street Journal: 
  • Live Updates: Hurricane Sandy.
  • Questions Cloud Market Reopening. Critics Fault Wall Street for a Lack of Disaster Preparedness; Friction Over NYSE's Backup Plan. U.S. stock markets were preparing to open in the wake of Sandy on Wednesday, ending a shutdown that left investors unable to trade for two days and sparked recriminations over whether Wall Street should have been better prepared to handle the impact of such a storm. The New York Stock Exchange said Tuesday that it plans to open as usual at 9:30 a.m. and that its trading floor and headquarters in lower Manhattan were "fully operational" despite widespread blackouts and flooding in that part of the city. The Nasdaq Stock Market and other exchanges will open as well. Bond markets will follow suit.
  • Apple(AAPL) Shake-Up Signals Tim Cook Era.
  • M.B.A.s Rethink Wall Street. Repeated cutbacks have dulled Wall Street's luster for some prospective Masters of the Universe, in the latest reflection of the gloom overhanging the finance industry. 
  • Sudan, After Blast, Greets Iran Ships. Iranian naval commanders met Tuesday with their counterparts in Sudan to discuss joint training exercises, in the wake of explosions at a weapons factory that Sudan blamed on Israeli jets.
  • In Vancouver, Home Sales Hit the Brakes. After a blistering, multiyear run that saw ramshackle bungalows fetch seven-figure sums, one of the hottest real-estate markets in North America seems to be cooling, damped in part by government changes meant to deflate what many policy makers saw as the start of a bubble.
  • Caesars Packs Up in Macau, Leaving Spoils to Its Rivals. "When you have that much capital devoted to an asset that's not delivering its potential, you need to consider other options," says Steven Tight, the company's president of international development
  • Some Investors Likely to Face New Tax Bite. Those Dabbling in Real Estate Could See Surtax on Rental Income Starting Jan. 1; Just Who Qualifies Is in Question. 
  • David Gamage: ObamaCare's Costs to the Working Class. Perverse incentives will make part-time work more attractive than a better-paying full-time job.
  • Big Storm Opportunism. Did you know Hurricane Sandy favors higher marginal tax rates?
Zero Hedge: 
Business Insider: 
Washington Times: 
Rasmussen Reports: 
Financial Times:   
  • Chinese Cos. Report Increase in Unpaid Bills in 3Q. 66% of Chinese cos. said in 3Q financial results that unpaid bills had increased in the 3-mo. period from a yr earlier, citing its own analysis of S&P Capital IQ data. Sany Heavy reported accounts receivables were 83% higher as of the end of 3Q.
  • The German government will swiftly implement a European Court of Justice ruling on the taxation of dividends of foreign corporations that will cause tax revenue losses. Federal and state governments face tax revenue losses of about 1.5 billion euros each in 2013 and 2014 and 600 million euros each in 2015 and 2016.
  • China will use the latest international benchmark to revise China's gdp calculation, citing Peng Zhilong, an official from the nation's statistics bureau.
Securities Times:  
  • Regulators may allow brokers to sell credit default swaps and other derivatives, citing people familiar with a meeting between regulators and Goldman Sachs China.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 123.0 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 96.50 -.5 basis point.
  • FTSE-100 futures +.01%.
  • S&P 500 futures +.13%.
  • NASDAQ 100 futures -.23%.
Morning Preview Links

Earnings of Note

  • (ETN)/1.09
  • (H)/.17
  • (RDC)/.48
  • (MA)/5.92
  • (HES)/1.19
  • (PWR)/.39
  • (IPGP)/.79
  • (COCO)/.04
  • (CLX)/.96
  • (STE)/.51
  • (CMI)/1.83
  • (AGCO)/1.02
  • (MGM)/-.17
  • (GM)/.60
  • (WCG)/1.47
  • (AMT)/.74
  • (CAM)/.88
  • (CRUS)/.71
  • (ALL)/1.13
  • (HTZ)/.61
  • (IPI)/.35
  • (TSO)/.34
  • (FSLR)/1.07
  • (RGR)/.80
  • (V)/1.50
  • (WMB)/.27
  • (MET)/1.28
  • (PZZA)/.54
  • (MUR)/1.20
  • (BMC)/.87
  • (BWA)/1.19
  • (SPW)/1.06  
Economic Releases
8:30 am EST
  • The 3Q Employment Cost Index is estimated to rise +.5% versus a +.5% gain in 2Q.
9:45 am EST
  • Chicago Purchasing Manager for October is estimated to rise to 51.0 versus 49.7 in September.
 10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,750,000 barrels versus a +5,896,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,400,000 barrels versus a -646,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -500,000 barrels versus a +1,439,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.13% versus a -.2% decline the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Williams speaking, France/Germany Bond Auctions, Germany retail sales data, Eurozone inflation data, Eurozone unemployment data, Canada GDP, China Manufacturing PMI, NAPM-Milwaukee report for October and the weekly MBA applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Tuesday, October 30, 2012

Tuesday Watch

Evening Headlines 
  • Spain Sets Discount for Bad Bank Assets, Seeks Investors. Spain’s bad bank will buy foreclosed assets at an average discount of 63 percent as the state seeks investors to become shareholders in the 60 billion-euro ($77 billion) facility, the nation’s bank-rescue fund said. The bad bank, known as SAREB, will apply an average discount of 46 percent to gross book value on loans to developers, the FROB rescue fund said in a presentation yesterday in Madrid. Nationalized lenders will transfer 45 billion euros of assets to the bad bank, while other lenders with capital shortfalls may transfer about 15 billion euros, FROB Chairman Fernando Restoy said, adding that the transfer values shouldn’t be a “reference” for the property held on the books of the rest of the banking industry. “The market will always try to make the read across and will conclude that the banks should be holding these assets at the higher discount,” Antonio Ramirez, an analyst at Keefe, Bruyette & Woods Ltd. in London, said in a phone interview. “It doesn’t look like the regulator will force the banks to take additional haircuts.
  • Juncker Calls Extra Finance Chief Talks as Greece Showdown Looms. Euro-area finance chiefs are scheduled to talk three times in the next two weeks as the 17- nation bloc grapples over ways to fill Greece’s financing gap and ease concerns that it might have to exit from the euro. Ministers will probably hold a “physical meeting” on Nov. 8, Luxembourg’s Jean-Claude Juncker, who leads of group of euro- region finance ministers, said in an interview in Luxembourg yesterday. The gathering will take place between a Greece- related conference call set for tomorrow and a regularly scheduled Nov. 12 meeting in Brussels. The negotiations reflect policy makers’ struggle to find a solution for Greece, which remains the epicenter of Europe’s sovereign debt crisis more than three years after it owned up to an inflated budget deficit. International Monetary Fund chief Christine Lagarde is due in Berlin today for talks with German Chancellor Angela Merkel after meeting with French President Francois Hollande in Paris yesterday. “There is no consensus right now,” said Carsten Brzeski, a senior economist at ING Group in Brussels. “I still think that some kind of debt forgiveness will happen in the future but I don’t see it happening right now.
  • Japan’s Industrial Production Falls as BOJ Mulls Easing. Japan’s industrial production fell the most since last year’s earthquake and tsunami, bolstering the case for the Bank of Japan (8301) to add to monetary easing today to support an economy at risk of contraction. Output declined 4.1 percent in September from the previous month, when it dropped 1.6 percent, the Trade Ministry said in Tokyo today. The median of 29 estimates in a Bloomberg News survey of analysts was for a 3.1 percent slide. None forecast such a large decline. A separate report showed unemployment unchanged. Weakness in global demand and the expiration of car- purchase subsidies hit output, which is on a “downward trend,” the ministry said today.
  • Asia Leveraged Loans Set to Stall as Global Gloom Spurs Caution. Leveraged loan volumes in Asia may decline in 2013 as Europe’s debt crisis and China’s slowdown limits mergers and acquisitions while private equity firms shy away from selling businesses at discounted prices, lenders say. Companies are disagreeing on the value of assets amid increased global economic uncertainty, making them cautious about large transactions, according to HSBC Holdings Plc, Credit Agricole SA and Mizuho Corporate Bank Ltd. Public-to-private M&A deals in the Asia-Pacific region are down 30 percent this half to date versus the first six months of the year while private- to-public deals slumped 34 percent, according to data compiled by Bloomberg. “M&A volumes this year have been lamentable but it’s not because of any lack of buyside equity and debt capital to get deals done,” said Lyndon Hsu, the head of leveraged and acquisition finance, Asia-Pacific, at HSBC in Hong Kong. “Banks in the region have plenty of money to deploy and there’s a lot of equity capital floating around, but as Europe chokes on its own economic and financial problems and growth in China slows, transaction flows are drying up.” 
  • U.S. Labor Dept. Says It Is Aiming for Nov. 2 Jobs Data Release.
  • Ohio Steel Towns Feeling Recession Fallout Waver on Obama. Kathryn Adams, a Democrat all her 56 years, chokes for a moment as she speaks. “Life is so much harder now for so many people than it was four years ago,” says Adams, a Methodist campus minister at Youngstown State University in Ohio, describing the struggling families she has served in soup kitchens and the declining collections at the local churches that support her work. “Too many people are hurting, and it’s time for a change,” she said, in explaining why she plans to vote against Barack Obama, the man she backed for president in 2008
  • Australia New-Home Sales Dropped 3.7% in September, HIA Says.
  • RBI Signals Inflation Needs to Ease to Boost Rate-Cut Scope. Indian monetary policy may have space in future to support growth if price pressures ease and fiscal and trade deficits narrow, even as caution is needed for now to focus on inflation, the nation’s central bank said. “Monetary policy needs to be cautious in the interim, focusing on inflation while using the available space to support growth to the degree it can,” the Reserve Bank of India said in a report yesterday ahead of its interest-rate decision in Mumbai today. If threats from inflation and the deficits recede further, that “could yield space down the line for monetary policy to respond to growth concerns,” it said.
Wall Street Journal: 
Zero Hedge: 
Business Insider: 
Rasmussen Reports: 
  • China's Baidu(BIDU) eyes soft fourth quarter as economy bites. Baidu Inc, China's largest search engine company, posted its slowest quarterly revenue growth in more than two years and forecast softer-then-expected growth this quarter, hurt by weaker sales as China's economic engine sputters. However, the company -- which still grew revenue by 50 percent in the third quarter -- said it added a record number of new advertisers for the quarter and was focusing on boosting revenue from fast-growing mobile search traffic. "Their large customers' spending has not been so robust and has been quite flat, but Baidu has done a decent job of bringing new customers online," said Michael Clendenin, managing director of technology consultancy firm RedTech Advisors.
  • US markets shut on Tuesday, focus shifts to Wednesday. Hurricane Sandy will close U.S. stock markets for a second day on Tuesday, as Wall Street turned its attention to whether markets would be able to resume functioning on the month's final trading day on Wednesday. U.S. stock markets closed on Monday due to weather for the first time in 27 years. Bond markets closed early, at noon, as winds and waves from Hurricane Sandy lashed the Eastern seaboard. NYSE Euronext and Nasdaq OMX Group, the largest two U.S. exchange operators, said they intend to reopen Wednesday, conditions permitting. The bond markets will also close on Tuesday, with traders aiming to reopen on Wednesday.
  • Sicilian vote, Berlusconi threat add to Italy uncertainty. Former Italian prime minister Silvio Berlusconi's struggling party suffered a heavy defeat on Monday as voters turned against the centre-right in its former stronghold of Sicily, five months before national parliamentary elections. The centre-left candidate Renato Crocetta, an openly gay anti-mafia campaigner, was set to be the next regional governor while there were strong gains for the anti-establishment 5-Star Movement of comic Beppe Grillo. "We've won in Sicily, it's crazy," said Pier Luigi Bersani, head of the Democratic Party (PD), the main party on the centre-left, adding that the result laid the groundwork for real change in the national elections.
China Securities Journal:
  • China's financial stability may be affected if it doesn't control large or one-way yuan appreciation resulting from speculative "hot money" or other negatives, according to a front-page commentary by Wang Donglin, a reporter at the newspaper. The current rapid appreciation of the currency isn't sustainable while it poses a hidden threat to the financial system, according to the commentary.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 125.50 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 97.0 +.25 basis point.
  • FTSE-100 futures -.14%.
  • S&P 500 futures -.63%.
  • NASDAQ 100 futures -.94%.
Morning Preview Links

Earnings of Note

  • (LLL)/1.85
  • (CAH)/.79
  • (ADM)/.43
  • (JCI)/.75
  • (F)/.30
  • (TRW)/1.16
  • (CBG)/.33
  • (ADVS)/.25
  • (BNNY)/.25
  • (WMB)/.27
  • (EA)/.10
  • (AGN)/1.04
  • (VLO)/1.79 
Economic Releases
9:00 am EST
  • The S&P/CaseShiller Home Price Index for August is estimated to rise +.5% versus a +.44% gain in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The effects of Hurricane Sandy, Fed's Dudley speaking, Fed's Kocherlakota speaking, ECB's Draghi speaking, Spain GDP report, German Unemployment report, Italy bond auction, India rate decision, Japan rate decision, Japan Manufacturing PMI, (MAT) analyst meeting and the (UNP) Investor Day could also impact global trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and consumer staple shares in the region. 

Monday, October 29, 2012

Today's Headlines

  • Spain's Pain Seen Intensifying as Slump Swells Deficit: Economy. Retail sales plunged 11% in September from a year ago, the National Statistics Institute said today. Figures on public finances, consumer prices, and gdp tomorrow may confirm a deteriorating economy and debt profile amid the toughest austerity in its domestic history.
  • Germany Supports ECB Greek Debt Buyback Plan, Rejects Write-off. German Chancellor Angela Merkel’s government said it is willing to consider a European Central Bank proposal for a buyback of Greek debt, as it stepped up opposition to imposing more losses on Greece’s creditors. A restructuring of Greek sovereign debt held by its public sector partners “is out of the question” for Germany and “not in Greece’s interests,” Steffen Seibert, Merkel’s chief spokesman, told reporters in Berlin today. At the same time, Seibert noted that Finance Minister Wolfgang Schaeuble said yesterday that a buyback “is worth serious discussion.”
  • Ford(F) Joins GM(GM) in Europe Morass Losing Combined $1 Billion. General Motors Co. (GM) and Ford Motor Co. (F), struggling to reverse growing losses in Europe, will each post plunging profits this week as they take different paths to fixing their operations in that economically ravaged region.
  • European Stocks Drop as Insurers Decline. European stocks dropped, snapping a three-day advance, as Hurricane Sandy headed toward New York City, prompting the U.S. to suspend equity trading on all markets today. A gauge of insurance companies posted the biggest decline of the 19 industry groups on the Stoxx Europe 600 Index. BT (BT/A) Group Plc slipped 1.5 percent after a person familiar with the matter said the telecommunications company may cut its full-year sales forecast. UBS AG (UBSN) rose 6.4 percent after Switzerland’s largest bank was said to have decided to cut as many as 10,000 jobs amid a plan to retreat from capital-intensive trading. The Stoxx 600 slid 0.5 percent to 269.14 at 1:32 p.m. in London.
  • Chinese Stocks Drop to One-Month Low; Yanzhou Coal Paces Losses. Chinese stocks fell, dragging the benchmark index to a one-month low, as weaker earnings from companies including Yanzhou Coal Mining Co. (600188) outweighed better- than-estimated figures from China Petroleum & Chemical Corp. (600028) Yanzhou Coal, China’s fourth-largest miner of the fuel, lost 1 percent after posting a loss in the three months to Sept. 30. Weichai Power Co. (000338), a maker of high-speed heavy-duty diesel engines, sank 2.1 percent after profit decreased. China Petroleum, Asia’s biggest oil refiner and also known as Sinopec, added 1.1 percent. “Earnings are the focus of the market now and investors give premiums to companies whose profits can exceed expectations,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “There will be little movement on the index as there are few catalysts for buying stocks.” The Shanghai Composite Index (SHCOMP) fell 0.4 percent to 2,058.94 at the close, its lowest level since Sept. 27.
  • Sandy Strengthens as Hurricane Barrels Toward New Jersey. Hurricane Sandy, the Atlantic’s largest tropical storm, will strike the East Coast today or early tomorrow with a life-threatening surge, emptying the streets of the nation’s largest cities and lashing a region of 60 million with gales, rain and even snow. The storm, 900 miles across, shut the federal government and state administrations from Virginia to Massachusetts. It halted travel, prevented U.S. stock markets from opening and upended the presidential campaign. It may cause more than $6 billion in damage and knock out power to 10 million for a week or more.
  • U.S. Corporate Credit Swaps Rise to Highest Level in Four Weeks. The Markit CDX North America Investment Grade Index climbed 2.5 basis points to a mid-price of 100.5 basis points at 8:57 am in New York. That is the highest intraday level since 102.3 basis points on Sept. 27
  • U.S. Margins Stagnate for Longest Stretch in Three Years. Chief executive officers in America are finding fewer costs to cut, sending profit margins into the first 12-month contraction since 2009 and leaving investors increasingly dependent on economic growth to boost stocks. Standard & Poor’s 500 Index companies earned $81.93 a share in the last 12 months on sales of $919.39 a share, generating margins of 8.9 percent, according to data compiled by Bloomberg that excludes banks. The measure, a key gauge for investors, slipped from 9.0 percent, the first decline after a three-year, 1.6 percentage point expansion, the biggest ever.
  • Riverbed(RVBD) Agrees to Buy OPNET Adding Network Management. Riverbed Technology Inc. has agreed to acquire OPNET Technologies Inc. for $43 a share in a transaction with an equity value of $1 billion, expanding its offerings to help businesses manage computer networks.
  • Presidential Vote Count Could Be Delayed in a Close Ohio. With polls showing a tightening U.S. presidential contest in Ohio, there’s a chance for what elections officials call the “nightmare scenario”: The race comes down to Ohio on election night, and the election can’t be called for days. That could happen if the margin of votes in Ohio were significantly less than the number of provisional ballots cast. These ballots are cast by voters who show up at the polls and have moved residences and haven’t updated their registration, or who don’t appear in the polling-place books. Provisional ballots are held for 10 days to verify voter eligibility. 
  • Consumer Spending in U.S. Increases 0.8%. Household purchases, which account for about 70 percent of the economy, rose 0.8 percent, the most since February, after a 0.5 percent gain the prior month, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 71 economists called for a 0.6 percent rise. Incomes rose 0.4 percent, the most since March. 
  • Apple(AAPL) IPad Mini Shipping Delays Suggest Product Sold Out. Apple Inc.'s iPad mini will now take about two weeks to ship to customers who order it from the company’s online store, suggesting the product may be sold out. Models with Wi-Fi only are available to ship in two weeks, while versions with wireless connections will be sent to customers in mid-November, according to delivery information on Apple’s website.
Wall Street Journal:
  • Live Blog: Hurricane Sandy Targets East Coast.
  • Election 2012: Streaming Coverage.
  • U.S. Stock Futures End Lower. As Hurricane Sandy barreled down on the East Coast, stock exchanges were closed, investors fled to the safety of Treasurys and trading in currencies and commodities continued with light volumes. Futures contracts on U.S. stocks traded until 9:15 a.m. Eastern time, following European markets lower. It wasn't clear when stock and derivatives markets would open again, but traders said the impact of the storm added to investors' worries. "Certainly the storm is playing a role—traders hate uncertainty and this is the ultimate in uncertainty because you can't predict the scale of the damage that may or may not occur," said Piers Curran, head of trading at London's Amplify Trading. Dow Jones Industrial Average futures ended trading 61 points lower, or 0.5%, to 12993. Standard & Poor's 500-stock index futures shed 4.85 points, or 0.5%, to 1402.75 and Nasdaq 100 futures shed 15.50 points, or 0.6%, to 2643.50.
  • Copper Falls to Seven-Week Low. Copper prices slumped to a seven-week low in thin trading as retreating global equities markets renewed demand concerns for the industrial metal and a stronger U.S. dollar dented sentiment. Copper for December delivery, the most actively traded contract recently traded down 3.70 cents, or 1.1%, at $3.5130 a pound on the Comex division of the New York Mercantile Exchange. Futures fell as low as $3.494 a pound, the lowest intraday price since Sept. 6
  • Sandy Leads Pfizer(PFE), Others to Postpone Earnings.
  • Spain Retail Sales Fall at Record Pace. Spanish retail sales plunged at a record pace in September as consumers cut spending following a sharp increase in the country's value-added tax rate. According to data released Monday by Spain's National Statistics Institute, or INE, seasonally adjusted retail sales were down 10.9% on a year-to-year basis in September, compared with a 2% decline in August. The September decline was the sharpest since the INE started collecting the data in 2004. It was the 27th straight monthly decline in retail sales. Spain increased its maximum VAT rate on consumer products and services to 21% from 18% at the beginning of September. Household spending is hurt by an unemployment rate that breached 25% for the first time in the third quarter. Spanish residents are also saving more in an attempt to cut their debt burden, which had soared during Spain's decadelong housing boom. Real retail sales dropped 12.6% on the year, the INE data showed, also the largest drop on record.
  • BYD Projects Annual Profit Will Plunge. Chinese battery and car maker BYD Co. 002594.SZ -0.69% forecast that annual earnings would drop as much as 98%, after reporting a sharp decline in third-quarter net. The company cited continued weakness in Chinese demand for cars, lower sales at BYD's handset division and losses in its solar business. Third-quarter net was 4.6 million yuan ($734,000), down 94% from 77.37 million yuan a year earlier, the company said Monday. Revenue fell 11% to 10.53 billion yuan. The Shenzhen-based company projected profit for the year to between 27.69 million yuan and 110.8 million yuan. MidAmerican Energy Holdings Co., a unit of Warren Buffett's Berkshire Hathaway Inc., BRKB 0.00% owns 10% of BYD. 
Financial Times: 
  • China’s luxury buyers embrace thrift. Shops selling, renting and repairing second-hand luxury goods are springing up across China, along with branches of high-end consignment shops from Japan and Hong Kong that buy and sell second-hand goods, paying the seller a commission.
  • Debt crisis: Troika paves way for taxpayer losses - live. The 'troika' inspectors in Greece have called on European bodies to write off a chunk of their loans, opening the way for first taxpayer losses since the debt crisis began, as Mario Draghi defended his bond-buying plans.

Monday Watch

Weekend Headlines 
  • Rajoy Faces Bailout Split With Monti at Madrid Meeting. Italian Prime Minister Mario Monti and Spanish counterpart Mariano Rajoy may try to mask a growing divide over Europe’s new bailout strategy when they meet in Madrid today. While both have jointly argued against extra budget austerity as the price for help from the European Central Bank, their interests diverge when it comes to whether they should ask for assistance together. A go-it-alone strategy by Spain would probably cut Italy’s borrowing costs while leaving Rajoy to weather the political flak of seeking emergency funds. “Rajoy was probably pressed by Monti in August to accept a pre-emptive” bailout, said Gilles Moec, co-chief European economist at Deutsche Bank AG in London. “It would have made things so much smoother in Europe and for Italy as well. Rajoy is very much following his own route now.”
  • UBS Said to Plan 10,000 Job Cuts, Investment Bank Shrinks. UBS AG’s decision to cut as many as 10,000 jobs and retreat from capital-intensive trading businesses will help position Switzerland’s largest bank to return more funds to shareholders.
  • BOE’s Bean Cautions Final-Quarter Growth May Be Weak. Bank of England Deputy Governor Charles Bean cautioned against over-optimism following third- quarter gross domestic product data and said U.K. growth may be weak in the final three months of the year. The figures were “stronger than we expected, but we should avoid getting over-excited,” Bean said in an interview with Sky News television yesterday. “It’s quite possible that we see weak growth in the next quarter. The big picture is of an economy that’s been bumping along the bottom.”
  • China’s Slowing Revenue Gains Seen Limiting Spending. China’s government spent more than planned in the first nine months of the year, and revenue gains moderated, leaving little room for public outlays to stoke the economy this quarter without an expansion of the budget. Fiscal revenue rose 10.9 percent in January-to-September from a year earlier to 9.06 trillion yuan ($1.5 trillion), compared with a 29.5 percent gain in the same period in 2011, Ministry of Finance data showed this month. Spending in the January-September period rose 21.1 percent, higher than the targeted 14.1 percent rise for the full year, leaving a surplus of about half last year’s level. “The effects of China’s fiscal policy were expansionary in the first nine months but will be neutral in the fourth quarter as spending won’t be higher than a year earlier,” said Ding Shuang, senior China economist with Citigroup Inc. in Hong Kong, who formerly worked at the People’s Bank of China and International Monetary Fund.
  • China’s Stocks Retreat to One-Month Low; Yanzhou Coal Declines. China’s stocks fell, extending last week’s decline, as Yanzhou Coal Mining Co. reported a quarterly loss and China Southern Airlines Co. posted lower profit. Yanzhou Coal, China’s fourth-largest miner of the fuel, lost 0.9 percent. China Southern, the nation’s biggest carrier by fleet size, slid 1.4 percent. Weichai Power Co., a maker of high-speed heavy-duty diesel engines, retreated 3.3 percent after profit decreased. “The market has yet to digest the bad impact of third- quarter earnings and sentiment is cautious,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. 
  • Korea’s Manufacturer Confidence Falls for Second Month. South Korean manufacturers’ confidence fell for the second straight month as slowing economic growth weighed on sentiment. An index measuring expectations for November fell to 70 from 72 in October, the Bank of Korea said in a statement in Seoul today. A measure of expectations at non-manufacturing companies was unchanged from October at 67, with any number below 100 indicating that pessimists outnumber optimists. “The Korean economy still faces considerable difficulty in the coming months,” Yoon Eun Hye, an economist at Standard Chartered Plc in Seoul, said before the release. 
  • H.K. Imposes Property Tax on Non-Locals on Bubble Risks. Hong Kong Chief Executive Leung Chun-ying imposed the city’s first property tax targeted at overseas buyers as U.S. monetary easing and record-low interest rates boost the risk of a housing bubble. Non-local and corporate buyers will have to pay a 15 percent tax upon purchase, Financial Secretary John Tsang told reporters at a press conference on Oct. 26. The government also raised a resale tax on property by about 5 percentage points and extended the period during which it will apply to three years from two. 
  • Will 3D Printing Kill Asia's Manufacturing Sector? (video) 
  • Speculators Reduce Wagers as Annual Advance Erased: Commodities. Speculators lowered bullish wagers on commodities for the third straight week, the longest streak since April, as prices erased this year’s gain on mounting concern about slowing economic growth. Hedge funds cut net-long positions across 18 U.S. futures and options by 0.2 percent to 1.18 million contracts in the week ended Oct. 23, the lowest since July 24, U.S. Commodity Futures Trading Commission data show. Copper holdings fell the most in seven weeks, and sugar wagers dropped to a one-month low. Bullish bets on gold slumped the most in three months.
Wall Street Journal:
  • Markets Go Dark Ahead of Storm. U.S. stock and options markets will close Monday due to Hurricane Sandy, exchanges and regulators said, and there was a chance the markets would remain closed through Tuesday. Earlier in the day Sunday, exchanges had decided to close their trading floors but stay open for electronic trading. However, exchanges, regulators and trading firms agreed late Sunday to close all U.S. stock markets.
  • Hurricane Sandy: Live Updates.
  • Europe's Crisis Spawns Calls for a Breakup—of Spain. This vibrant northern region of Catalonia has long been known as the "factory of Spain" for generating wealth that helped sustain the entire nation. Now Catalonia, beaten down by years of recession, has become the battleground in what threatens to become an economic civil war. In protests large and small, hundreds of thousands of Catalans are embracing a stark proposition: Only by breaking ties with Spain and becoming an independent country can Catalonia free itself from economic malaise
  • Catalonia Flies Flag for Secession from Spain. (video) 
  • Euro-Skeptics in Finland Are Projected to Make Gains. The euro-skeptic Finns Party likely made good on pollster predictions of being the biggest gainer in Finland's local elections Sunday as the fiercely-nationalistic party continued to gain popularity compared with previous elections. The party surged past its 2008 municipal election result in gaining 12.3% of votes, according to preliminary data released by the nation's justice ministry. The justice ministry numbers were based on 99.8% of votes being counted.
Business Insider: 
Zero Hedge:
Des Moines Register:
  • The Des Moines Register endorsement: Mitt Romney offers a fresh economic vision. Ten months ago this newspaper endorsed former Massachusetts Gov. Mitt Romney for the Republican nomination for president. An overarching consideration was which of the party’s candidates could we see occupying the White House, and there was no question that Romney was qualified for the job. Now, in the closing days of the general election campaign, the question is which of the two contenders deserves to be the next president of the United States.
  • Governments to debate 50 billion euro cut to EU budget. European Union governments will debate a cut of at least 50 billion euros this week as the starting point for negotiations on the bloc's proposed 1 trillion-euro ($1.3 trillion) long-term budget, a source familiar with the issue said. The cut will be proposed in the latest EU negotiating text on the bloc's spending plan for 2014-2020, but is unlikely to be deep enough to satisfy Britain, Germany, France and other net budget contributors. 
  • Honda cuts FY profit forecast as China backlash hits. Japan's Honda Motor Co cut its full-year net profit forecast by a fifth after sales in China, the world's biggest autos market, were hit by a popular backlash against Japanese products in a dispute over East China Sea islands. The substantial cut makes it likely that rivals Toyota Motor and Nissan Motor will follow suit when they report quarterly earnings early next week.
Frankfurter Allgemeine Zeitung:
  • Munich Re is planning for all potential outcomes to the euro crisis, including an end to the common currency, citing an interview with CEO Nikolaus von Bomhard. Another Greek debt restructuring would cause markets to lose all confidence. Laws are needed in case a euro zone country goes bankrupt.
Financial News: 
  • China's monetary authority is now "much less" inclined to cut lenders' reserve requirement ratio because of growth in foreign currency positions and M2 money supply, and persistent high levels of financing bolstered by corporate bonds and trust lending, Financial News said in a front-page commentary written by Xu Shaofeng, who wasn't identified.
China Securities Journal:

  • China's economy doesn't currently have "significant" conditions for rebound as global quantitative easing limits the nation's monetary policy, China Securities Journal publishes a front page commentary written by Cao Yang, a reporter at the newspaper. Some important, traditional industries in China are still facing over-capacity, the commentary said.
China State Oceanic Administration:
  • Chinese patrol boats are "monitoring and collecting evidence" of Japanese actions after finding Japan's patrol boats in waters near the disputed islands.
The News Tribe:
  • Al-Qaeda chief urges followers to kidnap westerners. Al-Qaeda leader Ayman al-Zawahiri has urged his followers to kidnap western citizens in order to liberate Qaeda inmates in U.S, Guantanamo Bay and other places. In a 58-minute video posted on Jihadi websites, the terror outfit leader said that liberating Omar Abdul Rahman, an Egyptian cleric jailed in the United States for his role in the 1993 World Trade Center attack, and inmates at the US prison at Guantanamo Bay was an “obligatory duty for every Muslim.” “I call upon Muslims to capture citizens of the countries that wage wars against Muslims,” he said. “Our captives or Sheikh Omar Abdul Rahman will not be liberated except through force, for it is the only language that they understand.” In that vein, he made a reference to Warren Weinstein, a relief worker with USAID who was captured in Lahore, Pakistan in August 2011. The al-Qaeda chief also focused his homeland Egypt in speech by urging Egyptians to restart their revolution to press for Islamic law.
Weekend Recommendations
  • Made positive comments on (BKS) and (HY).
  • Made negative comments on (GIS) and (MNST).
Night Trading
  • Asian indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 123.0 +4.0 basis points.
  • Asia Pacific Sovereign CDS Index 96.75 +3.25 basis points.
  • FTSE-100 futures -.21%.
  • S&P 500 futures -.42%.
  • NASDAQ 100 futures -.40%.
Morning Preview Links

Earnings of Note

  • (BKW)/.14
  • (RRGB)/.17
  • (CRUS)/.71
  • (FLS)/2.06
  • (PCL)/.36
  • (HTZ)/.61
  • (PPS)/.62
  • (APC)/.75
  • (ADVS)/.25
  • (JLL)/1.18
  • (MAS)/.12
  • (CNA)/.67
  • (SUP)/.19
Economic Releases
8:30 am EST
  • Personal Income for September is estimated to rise +.4% versus a +.1% gain in August.
  • Personal Spending for September is estimated to rise +.6% versus a +.5% gain in August.
  • The PCE Core for September is estimated to rise +.1% versus a +.1% gain in August.
 10:30 am EST
  • Dallas Fed Manufacturing Activity for October is estimated to rise to 0.0 versus -.9 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Spain retail sales report and the Japan unemployment rate could also impact global trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate shares in the region. The Portfolio is 25% net long heading into the week.