Today's Headlines

Bloomberg:

• U.S. Embassy in Tunisia Stormed. Protesters penetrated the embassy grounds in Tunis after scaling the walls, and a cloud of smoke hung over the compound. Tunisian security forces fired shots and entered the embassy compound chasing the demonstrators, who didn’t get into the main embassy building. Authorities attempted to extinguish a fire set by protesters at the American school near the embassy. In Sudan’s capital, Khartoum, Germany’s embassy was set afire and crowds also gathered outside U.S. and British missions. Police used water cannons and fired warning shots into the air to disburse hundreds of protesters who rallied for a second day at the U.S. Embassy in Yemen’s capital.
• Ryan Calls for ‘Moral Clarity’ in American Foreign Policy. Republican vice presidential candidate Paul Ryan called for U.S. foreign policy to have “moral clarity and firmness of purpose” in remarks today to the Family Research Council’s voter summit in Washington. His address followed criticism by Republican presidential candidate Mitt Romney of how President Barack Obama’s adminsitration has handled attacks on U.S. diplomatic outposts this week in the Middle East.
• Spanish Regions’ Debt Swells as Aid Dilemma Continues: Economy. Spanish regions’ debt load continued to swell in the second quarter, as the cash-strapped local administrations urged the government to speed up its planned bailout fund. The regions’ debt rose to 14.2 percent of gross domestic product from 13.8 percent in the first three months of the year, the Bank of Spain in Madrid said today on its website. The overall public debt load rose to 75.9 percent of GDP from 72.9 percent in the prior quarter.
• Spanish Home Prices Fall Most on Record as Economy Shrinks. Spanish home prices fell the most on record in the second quarter as the euro area’s fourth- largest economy shrank and a reduction in mortgage lending crimped demand for property. The average price of houses and apartments declined 14.4 percent from a year earlier, the most since the measurement began in 2008, the National Statistics Institute in Madrid said today in an e-mailed statement. Prices fell 3.3 percent from the previous quarter. “The data reflects a significant drop and confirms that prices haven’t bottomed out yet,” said Fernando Encinar, co- founder of Idealista.com, Spain’s largest property website. “Only homes that are heavily discounted will sell as access to credit has completely dried up for potential buyers.” Spain, which forecasts an economic contraction of 1.7 percent this year, is in its second recession in three years. The country’s 25 percent unemployment rate is Europe’s highest and has diminished lending for residential real estate. House prices more than doubled in the decade through 2007, before turning negative in the first quarter of 2008 and have since fallen by about 23 percent, data from the Ministry of Public Works show. Home prices have fallen 32.4 percent since a December 2007 peak, according to separate data from Tasaciones Inmobiliarias, Spain’s largest home appraiser.
• India's August Inflation Rate May Be at 7.5%, Bloomberg India TV. The median of 35 estimates is for a 7.1% gain, according to a Bloomberg News Survey.
• Hong Kong Tightens Mortgages Amid QE3 Concerns of Bubble. Hong Kong’s central bank tightened mortgage lending after saying a third round of quantitative easing by the U.S. Federal Reserve risks pushing up home prices that have already surpassed their 1997 peak. The central bank is limiting the maximum term on all new mortgages to 30 years, Norman Chan, chief executive of the Hong Kong Monetary Authority, told reporters yesterday. Mortgage payments for investment properties can’t be more than 40 percent of buyers’ monthly incomes, from the current 50 percent, he said.
• U.S. Consumer Price Index Increases by Most Since 2009. The cost of living in the U.S. climbed in August by the most in more than three years, reflecting a surge in fuel costs. The 0.6 increase in the consumer-price index was the biggest since June 2009 and followed no change in the previous month, the Labor Department reported today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for an advance of 0.6 percent. The core index, which excludes volatile food and fuel costs, climbed a less-than- projected 0.1 percent for a second month.
• Commodities Set for Longest Run of Weekly Gains Since ’10. Commodities headed for the longest run of weekly gains since 2010 as the Federal Reserve’s third round of monetary measures to boost the U.S. economy spurred speculation that energy and metal demand will increase as the US dollar declines. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 1.1 percent to 694.71 at 12:29 p.m. New York time. The gauge was poised for the seventh straight weekly advance, the longest rally since October 2010. Industrial metals led the rally, and crude oil in New York topped $100 a barrel for the first time since May. The Fed said yesterday it will expand holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month and keep the benchmark interest rate near zero “at least through mid-2015.” The GSCI index surged 92 percent from the end of 2008 through June 2011 as the Fed bought $2.3 trillion of debt in the first two rounds of quantitative easing and held borrowing costs at a record low.
• Oil Rises to $100 for First Time in Four Months on Fed. Oil climbed above $100 a barrel in New York for the first time since May as the Federal Reserve announced it will buy mortgage-backed securities to encourage growth in the world’s largest economy. Crude oil for October delivery advanced 66 cents, or 0.7 percent, to $98.97 a barrel at 1:52 p.m. on the New York Mercantile Exchange. Futures breached $100 for the first time since May 4 and touched $100.42. Prices have increased 2.6 percent this week and are up 11 percent from a year ago. Brent oil for November settlement climbed 91 cents, or 0.8 percent, to $116.79 a barrel on the London-based ICE Futures Europe exchange. Prices reached $117.95, the highest level since May 3.

Wall Street Journal:

• Protesters Storm U.S. Compounds in Mideast, Africa. Demonstrations sparked by an anti-Muslim video that started in Egypt this week spread across parts of Africa, Asia and the Middle East on Friday, with crowds assaulting U.S. diplomatic compounds in Tunisia, Sudan and Yemen. Thousands of demonstrators massed outside the U.S. Embassy in Tunis and some were seen climbing the outer wall of the grounds and raising a flag on which was written the Muslim profession of faith. Police responded by firing tear gas, and police gunfire could be heard. A group of several dozen protesters briefly managed to enter the embassy compound and set fire to cars in an embassy parking lot. They were pushed back outside by security forces who continued to arrive on the scene.
• Live Updates: Mideast Turmoil.

MarketWatch:

• Why defend dividends? Commentary: Raising the tax rate will slow the economic recovery. Last month, Apple Inc. paid out nearly $2.5 billion in dividends to its shareholders. For now, recipients of the technology giant’s prosperity will be subject to a tax rate of 15%, as dictated by the Bush-era tax cuts. But with those rates set to expire at the end of the year and a Congress focused on a major election in November, the future of taxation on savings and investment remains a mystery. Congress should act now to alleviate the uncertainty. Without action from Congress, the top rate on dividends (now 15%) will expire at the end of this year, and revert to a staggering 43.4% (39.6% plus the health care surcharge of 3.8%) raising taxes by almost 190% for millions of Americans. Capital gains tax rate will rise to 23.8% (20% plus the healthcare surcharge).

Fox News:

• Bomb threats lead to evacuations at University of Texas, North Dakota State University. Thousands of people streamed off university campuses in Texas and North Dakota on Friday after phoned-in bomb threats prompted evacuations and officials warned students and faculty to get away as quickly as possible. No bombs were found on either campus by early afternoon it was not clear whether the threats were related. The University of Texas received a call about 8:35 a.m. from a man claiming to be with Al Qaeda who said he had placed bombs all over the 50,000-student Austin campus, according to University of Texas spokeswoman Rhonda Weldon. He claimed the bombs would go off in 90 minutes and all buildings were evacuated at 9:50 a.m. as a precaution, Weldon said.
• White House warns planned budget cuts 'deeply destructive' to military, other agencies. A White House report is warning that $110 billion in across-the-board spending cuts at the start of the new year would be "deeply destructive" to the military and core government responsibilities like patrolling U.S. borders and air traffic control. The Obama administration says the automatic cuts, mandated by the failure of last year's congressional deficit "supercommittee" to strike a deal, would require an across-the-board cut of 9 percent to most Pentagon programs and an 8 percent cut to many domestic programs. The cuts, combined with the expiration of Bush-era tax cuts at the end of this year, have been dubbed a "fiscal cliff" for the country. Economists warn that the one-two punch could drive the economy back into recession.

CNBC.com:

• Fed's 'QE Infinity': Four Things That Could Go Wrong.
• UnitedHealth(UNH) to Replace Kraft in Dow Industrial Average.
• Anti-US Protests Spread; Gunfire at Embassy in Sudan.
• Still No Deal to End Chicago Teachers Strike.
• Is a ‘Trust Deficit’ in China Destabilizing Growth?

Business Insider:

• An Incredible Map Of Today's Global Islamic Protests.
• Prepare For A Surreptitious 30% Haircut Every Decade.
• American School In Tunisia Torched.

Zero Hedge:

• Consumer Confidence Rises On Inflation Expectations... Dropping. (graph)
• Anti-US Protests Spread To India, Bangladesh, Indonesia.
• Germany Opines: "Obama's Middle East Policy Is in Ruins".
• Industrial Production Plunges Most Since March 2009. (graph)
  

New York Times:

• Fed May Have Limited Effect, at Best, on Real Estate.

Minyanville:

• QE-Infinity: Poking Holes in Bernanke's Logic.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows Mitt Romney attracting support from 48% of voters nationwide, while President Obama earns 45% of the vote. Two percent (2%) prefer some other candidate, and five percent (5%) are undecided.

Reuters:

• Apple(AAPL) shares hit record high as iPhone 5 demand seen strong.
• U.S. House Republicans pass "No More Solyndras" bill. The Republican-controlled U.S. House of Representatives passed a bill on Friday that would phase out a program for energy loans after a lengthy investigation into why a now-bankrupt California solar panel maker got a $535 million government loan. The "No More Solyndras" bill, named after the company that has become a stock campaign talking point for Republicans ahead of the Nov. 6 presidential elections, is highly unlikely to be taken up by the U.S. Senate or signed by President Barack Obama. But the 245-161 vote gives Republicans another chance to hammer home a message about Obama's energy policies and the administration's management of the economy ahead of the elections.
• Grim factory sales darken Canada outlook. Canadian manufacturing sales dropped sharply in July on weakness across most industries, data showed on Friday in a troubling omen that analysts say may result in the economy failing to grow in that month. Factory sales fell 1.5 percent in July from June versus market expectations of a 0.4 percent gain, dragged down mainly by a drop in sales of aerospace products, motor vehicles, and machinery, Statistics Canada said. In volume terms, sales fell 2 percent in July.
• Oil prices risk pushing world back into recession -IEA economist. Current oil prices risk pushing back the global economy into recession, the International Energy Agency's chief economist said after U.S. crude rose above $100 a barrel on Friday, its highest level in four months. "I see the prices today, in this economic context, as unbearable for consumers," Fatih Birol told Reuters by telephone. "High prices together with other factors could push the global economy back into recession," he added.

Sueddeutsche Zeitung:

• ECB at Odds With Bundesbank on Crisis, Draghi Says. ECB President Mario Draghi said the ECB and Germany's Bundesbank are at odds over how to solve the euro area's sovereign debt crisis, citing an interview. "It would be good if we could always work together. Often we can, but at this time we have different views on how to manage the crisis."
  

Talouselaemae:

• Banking Union No Solution to Europe Crisis, Nordea Chairman Says. Europe must recapitalize its lenders to resolve the lack of confidence in the banking industry, Nordea Bank Chairman Bjoern Wahlroos said. A "banking union won't resolve this fundamental issue" that banks haven't been recapitalized, he said. Joint liability is "absurd" as it would imply extensive transfers, endanger the stability of the entire system, he said. "The assumption that backing from the good banks would be reflected on lenders in bad shape could be reversed, meaning that the large majority of banks doing poorly could destroy the last healthy part of the system". Finland shouldn't provide more funds to euro-area rescues, Wahlroos said.
  

Bear Radar

Style Underperformer:

• Large-Cap Value +.15%

Sector Underperformers:

• 1) Drugs -1.34% 2) Airlines -1.26% 3) Restaurants -.54%

Stocks Falling on Unusual Volume:

• SAVE, LCC, SO, VZ, MO, T, MRK, PFE, UGP, CRK, WERN, RP, AMSG, UGP, RIG, TYC, WDC, NVO, BCE, AWK, PCYC, SAIA, DXCM, VCLT, CGI, AZO, CBRL, SBS, NKE, ABC and MCK
  

Stocks With Unusual Put Option Activity:

• 1) XOP 2) HES 3) INFY 4) XLP 5) ANR
  

Stocks With Most Negative News Mentions:

• 1) WERN 2) DAL 3) RIG 4) SYNA 5) CMA
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.29%

Sector Outperformers:

• 1) Gold & Silver +2.90% 2) Coal +2.83% 3) Steel +2.64%

Stocks Rising on Unusual Volume:

• SLT, CLF, HK, PXD, SKYW, ALOG, ASGN, ALJ, IOC, YOKU, STI, MCP, ASGN, FOSL, CRUS, JOE, P, SWC, FSLR, JOY, WLT, ATI, MDR, CBG, SHLD, FB, FBHS, WLL, TITN, UPL and PKI
  

Stocks With Unusual Call Option Activity:

• 1) UUP 2) RSX 3) WIN 4) HCA 5) BX
  

Stocks With Most Positive News Mentions:

• 1) SKYW 2) CVX 3) ALK 4) TXN 5) T
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Mursi Risks Rift With U.S. or Voters as Islamists Rally. Anti-American protests in Cairo are pushing President Mohamed Mursi into a balancing act where a misstep risks the loss of his core Islamic constituency or a rift with the U.S., Egypt’s longtime ally and financier. In Cairo, where protesters scaled the embassy walls that day and tore down the U.S. flag, Mursi’s Muslim Brotherhood has called for a mass rally today to denounce the movie. More violence or anti-U.S. sentiment would strain ties at a time when Mursi is seeking a $4.8 billion International Monetary Fund loan to revive an economy stalled since last year’s uprising. The U.S. is the IMF’s biggest shareholder. A breach with Washington could hurt Egypt’s push for influence on issues such as the conflict in Syria, even if it might win him some regional support. Yet turning against the Islamist protesters risks alienating the voters who made Mursi Egypt’s first democratically elected leader. “This is the first real test for Mursi,” said Khalil al- Anani, a political analyst at Durham University in the U.K. Anything other than a strong reaction against the Muhammad film “would absolutely damage his public image in Egypt. At the same time, he cannot go so far against the U.S.,” al-Anani said. “At some point, he will have to sacrifice one of these, and I don’t think he’ll sacrifice his internal image.”
• Schaeuble Cautions Spain Against Aid Bid as Cyprus Talks Begin. German Finance Minister Wolfgang Schaeuble discouraged Spain from seeking a full international bailout, saying another request for outside aid risked a new round of financial-market turmoil. “I’m not in the camp that says ‘take the money,’” Schaeuble, 69, said in an interview in Berlin when asked about moves to press Prime Minister Mariano Rajoy’s government to seek more aid. Spain “would be daft” to ask for a bailout on top of the 100 billion euros ($130 billion) for its banks if it didn’t need it, he said. European finance ministers gathering for a two-day meeting beginning in Cyprus today are at odds over Spain, as Rajoy stalls on whether to request more aid from euro-area rescue funds and win European Central Bank help to lower government borrowing costs. France is pressing Spain to seek more help to contain the euro-area crisis three years after it emerged in Greece, three people familiar with the negotiations said this week.
• QE3 Adds to Hong Kong Asset Bubble Risks, HKMA’s Chan Says. Hong Kong’s central bank head said a third round of quantitative easing by the U.S. Federal Reserve risks pushing up property prices that have already surpassed their 1997 peak, and may prompt the city to adopt more cooling measures. “The launch of QE3 and the short-term improvement of the European debt crisis will increase the risk of overheating in Hong Kong’s asset market,” Norman Chan, chief executive of the Hong Kong Monetary Authority, told reporters at a briefing today. “We will further introduce more counter-cyclical measures when appropriate.”
• Investor Worry: Bank Failure in Europe or China. (video) Philadelphia Trust's Michael Crofton and ICAP Corporates' Ken Polcari speak with Bloomberg's Matt Miller about the concerns that keep them up at night as investors.
• Oil Rises to Four-Month High on Stimulus, Middle East. Oil rose to the highest price in four months on speculation economic stimulus measures by the U.S. will boost fuel demand and concern unrest in the Middle East and North Africa will disrupt supplies. Oil for October delivery gained as much as 76 cents to $99.07 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.96 at 11:10 a.m. Sydney time. Brent oil for November settlement rose 49 cents, or 0.4 percent, to $116.37 a barrel on the London-based ICE Futures Europe exchange.
• Gold Near Highest in More Than Six Months as Fed Announces QE3. Gold for December delivery on the Comex in New York traded little changed at $1,771.30 an ounce at 6:04 a.m. in Singapore time, after topping $1,770 yesterday for the first time since February as the Federal Reserve announced a third round of so-called quantitative easing.
• Steel Drop Prompts Most Short-Term Debt Since 2009: China Credit. China's largest steel mills are resorting to the most short-term funding in at least three years as slumping profits make it harder to repay debt. Listed steelmakers had 35% more outstanding loans maturing within 12 months on June 30 than a year earlier, according to a Sept. 4 report from China International Capital Corp. The number reporting net negative cash flow rose to 21 from 10, the Beijing-based investment bank said. This is a bad sign for the steelmakers, as they may be forced to tap short-term loans to pay off longer-term debt," said Luo Wei, an analyst at CICC.
• Japan Sees a 20% Drop in China Tourists as Islands Spat Heats Up. Chinese visitor numbers to Japan may decline as much as 20 percent because of a dispute over uninhabited islands in the East China Sea, according to the Japan National Tourism Organization. “We are very worried,” Mamoru Kobori, the tourism agency’s overseas marketing manager, said by phone yesterday. “There will surely be an impact on the numbers and the only question is how much -- 10 percent or 20 percent is possible.”
• Chinese Ships Enter Waters Near Islands Disputed With Japan. Six Chinese government ships entered what Japan sees as its territorial waters close to islands disputed by the two nations, heightening nationalist sentiment in a standoff that damping trade and tourism. Two ships have since left the area and the other four are being urged to do so, Japan’s coast guard said in a statement. Another two vessels were seen in nearby waters, Japanese broadcaster NHK reported. China’s official Xinhua News Agency said two Chinese surveillance fleets are patrolling around the islands, which are in areas rich in gas and fishing grounds. “The fact that there has been an incursion into our territorial waters is extremely regrettable,” said Chief Cabinet Secretary Osamu Fujimura. “We are strongly urging the Chinese side to withdraw immediately.”

Wall Street Journal:

• Mideast Turmoil Spreads. The Libyan government arrested four people Thursday in connection with the deadly attack on the American consulate Tuesday night as Libyan and U.S. officials mounted a manhunt for others believed to be involved. Protests spread across the region, breaking out in Yemen and Iran and once again in Cairo, where Egyptian police in riot gear beat back crowds of young men in a street filled with tear gas outside the U.S. Embassy. In Yemen's capital, San'a, hundreds of young men breached the outer security rings of the fortified U.S. Embassy. Evidently inflamed by a video mocking the Prophet Muhammad, one young man in Yemen shouted, "Troops will not stand in our way in defending the honor of our Prophet.'' Still, there were indications some demonstrators were using the protests to put pressure on their countries' governments as much as to assail the video.
• Doctor, Hospital Deals Probed.
• Home Depot(HD) to Shut Seven China Stores, Take $160 Mln Charge.
• Trades After 2008 Paulson Meeting Probed.

CNBC:

• Vote Now: Did the Fed Get It Right?
• Japan Cuts Economic View Again on Weak Global Demand. Japan's government cut its assessment of the economy for the second straight month and warned that growth is pausing, signaling growing concern over the pain from the global slowdown and keeping the central bank under pressure to provide further monetary stimulus.
• Foreign Central Banks' US Debt Holdings Rise. The Fed said its holdings of U.S. securities kept for overseas central banks rose by $1.777 billion in the week ended Sept. 12, to stand at $3.575 trillion. The breakdown of custody holdings showed overseas central banks' holdings of Treasury debt rose by $1.826 billion to stand at $2.875 trillion. Overseas central banks, particularly those in Asia, have been huge buyers of U.S. debt in recent years and own more than a quarter of marketable Treasuries. China and Japan are the biggest two foreign holders of Treasurys.

Business Insider:

• Central Banks Helped Contribute To The Financial Crisis.
• Michael Lewis' Profile Of Obama Reveals Worrisome Details Of His Decision-Making In Libya.

Zero Hedge:

• The Punchline In His Own Words: Bernanke Advocates Blowing Asset Bubbles As The Antidote To Depression.
• The Fed's Balance At The End Of 2013: $4 Trillion. (graphs)
  
• What Does A $4 Trillion Fed Balance Sheet Mean For Gold And Oil. (graphs)

Nasdaq.com:

• Werner(WERN) Q3 Outlook Misses View - Quick Facts. Werner Enterprises, Inc. (WERN) Thursday forecast third-quarter earnings in a range of $0.33 to $0.36 per share. On average, 25 analysts polled by Thomson Reuters currently expect the company to earn $0.44 per share for the third quarter. Analysts' estimates typically exclude special items. The company said the third-quarter earnings are being affecting by several factors including rising fuel prices and higher operating expenses.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows Mitt Romney attracting support from 47% of voters nationwide, while President Obama earns 46% of the vote. Three percent (3%) prefer some other candidate, and five percent (5%) are undecided.

Reuters:

• S&P: China's Top Corporates Have Significant Financial Risks. Standard & Poor's Ratings Services cautions that the financial risks of the top 107 companies in China could deteriorate as economic growth slows.
• ETFs fuel best equity fund inflows in a year -Lipper.
• Moody's cites negative credit factors in Chicago teachers strike. A teachers strike against the Chicago Public Schools is a negative credit factor for the district, which may have to offer budget-busting salary increases to reopen schools, Moody's Investors Service said on T hur sday. "The magnitude of the union's demands and the disruption caused by the walk-out of 29,000 employees are credit negatives for CPS," the credit rating agency said in a report.

Telegraph:

• The Arab Spring turns sour for America. The murder of the US ambassador to Libya is a shocking reminder to Barack Obama that helping to overthrow dictators does not guarantee stability in the region.

Bild:

• Georg Fahrenshon, president of German DSGV savings banks association, tells Bild he rejects European Commission plans for a banking union with cross-border deposit guarantees because it may threaten German savings. Fahrenschon said "it must not be possible that distressed banks from abroad are saved with money we hold ready to protect the deposits of our clients."

Financial Post:

• Quantitative easing last thing U.S. needs. Why inflate asset prices right after a bubble? The Fed pursued two previous rounds of QE in which it purchased various long-term bonds. It is also continuing a second round of a related exercise called Operation Twist, under which it sells short-term assets to buy long-term assets. The net effect on the economy has been imperceptible, but the net effect on the Fed is quite pronounced, as its balance sheet has ballooned to US$2.814-trillion today from US$924-billion in mid-September 2009. It is hard to see how another round of QE would help the economy. Long-term interest rates are already at historic lows. For example, the 10-year treasury bond rate has wandered between 1.4% and 1.8% over the past three months, and the conventional 30-year mortgage rate remains below 3.5%. For comparison, the average rate on the 10-year treasury bond during the 2000s was 4.3%, and the average mortgage rate was 6.1%. The immediate harm is the added noise in market signals and the added uncertainty about future Fed actions and consequences. Also, if the Fed is able to depress long-term interest rates artificially — as the policy implies — one ill consequence would be widespread distortions of various asset prices, most obviously of long-term debt obligations, but also equity values and commodity prices. Immediately after a housing bubble, a policy of intentionally distorting asset prices is a tough sell. Further, consider what is at the heart of QE: a central bank buying vast quantities of government debt. Historically, governments have forced central banks to buy debt because the government has proven so irresponsible that financial markets will not buy the bonds necessary to fund government spending. Despite President Obama’s fourth consecutive trillion-dollar budget deficit, the U.S. Treasury has no problem finding buyers for its notes and bonds. The intent today is not to monetize debt in the old-fashioned way. Motivations differ, but are the consequences? Not entirely. The Fed still ends up with boatloads of government bonds. The real problem with QE — beyond increased near-term uncertainty — is that the Fed must at some point unload all these bonds it has bought. The Fed will buy bonds in soft markets and sell them when interest rates are already rising, pushing interest rates up further, faster. The problem, in short, is that the Fed will have failed to prop up the economy when it was weak only to risk killing the recovery once it really takes off.

China Securities Journal:

• China's trade growth may further slow as the global economy may remain sluggish in the future, Liu Jianying, a researcher with the Chinese Ministry of Commerce, wrote in a commentary. China is facing a "very severe" situation in realizing this year's trade growth target of 10%, Liu wrote.
• Fed's QE3 Brings More Risk Than Return. The Federal Reserve's new round of quantitative easing may bring "more risk than return," according to a commentary published on the front page today. Global capital markets shouldn't have overly high expectations for any boost from the policy, according to the commentary.
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 115.50 -8.0 basis points.
• Asia Pacific Sovereign CDS Index 102.0 -.75 basis point.
  
• FTSE-100 futures +1.09%.
  
• S&P 500 futures +.28%.
  
• NASDAQ 100 futures +.34%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
8:30 am EST

• The Consumer Price Index for August is estimated to rise +.6% versus unch. in July.
• The CPI Ex Food & Energy for August is estimated to rise +.2% versus a +.1% gain in July.
• Advance Retail Sales for August are estimated to rise +.8% versus a +.8% gain in July.
• Retail Sales Less Autos for August are estimated to rise +.7% versus a +.8% gain in July.
• Retail Sales Ex Autos & Gas for August are estimated to rise +.4% versus a +.9% gain in July.

9:15 am EST

• Industrial Production for August is estimated unch. versus a +.6% gain in July.
• Capacity Utilization for August is estimated to fall to 79.2% versus 79.3% in July.
• Manufacturing Production for August is estimated to fall -.3% versus a +.5% gain in July.
  

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for September is estimated to fall to 74.0 versus 74.3 in August.

10:00 am EST

• Business Inventories for July are estimated to rise +.3% versus a +.1% gain in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lockhart speaking, Eurozone CPI data, Eurozone Finance Ministers Meeting and the (OSK) analyst day could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by commodity and industrial 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 Surging into Final Hour on Global Central Bank Action/Stimulus Hopes, Euro Bounce, Short-Covering, Investor Performance Angst

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Every Sector Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 14.25 -9.81%
  
• ISE Sentiment Index 162.0 +22.73%
  
• Total Put/Call .78 +13.04%
  
• NYSE Arms .40 -58.64%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 86.06 bps -5.33%
  
• European Financial Sector CDS Index 203.66 bps +2.66%
  
• Western Europe Sovereign Debt CDS Index 182.31 -.64%
  
• Emerging Market CDS Index 203.69 -2.22%
  
• 2-Year Swap Spread 13.5 -2.0 basis points
  
• TED Spread 29.25 -.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -17.0 +4.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
  
• Yield Curve 150.0 -1 basis point
  
• China Import Iron Ore Spot $96.10/Metric Tonne -2.04%
  
• Citi US Economic Surprise Index 25.10 -1.2 points
  
• 10-Year TIPS Spread 2.48 +9 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +28 open in Japan
• DAX Futures: Indicating +69 open in Germany
  

Portfolio:

• Higher: On gains in my Tech/Retail/Medical/Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  
• Market Exposure: 50% Net Long

Today's Headilnes

Bloomberg:

• Schaeuble Cautions Spain Against Aid Bid in Poke at France. German Finance Minister Wolfgang Schaeuble discouraged Spain from seeking a full international bailout, saying another request for outside aid risked a fresh round of financial-market turmoil. “I’m not in the camp that says ‘take the money,’” Schaeuble said in an interview in Berlin today when asked about French moves to press Spanish Prime Minister Mariano Rajoy’s government to ask for more aid. Spain “would be daft” to ask for a bailout on top of the 100 billion euros ($129 billion) for its banks if it didn’t need it.
• U.S. Jobless Claims Rise to Highest in Two Months: Economy. The number of Americans who filed applications for unemployment benefits last week rose to the highest in almost two months. Jobless claims increased 15,000 in the week ended Sept. 8 to 382,000, Labor Department figures showed today in Washington. The median forecast of 50 economists surveyed by Bloomberg called for 370,000 claims. Employment is cooling as a global slowdown and looming U.S. tax policy changes keep businesses hesitant about hiring. Persistent joblessness, which Fed Chairman Ben S. Bernanke called a “grave concern,” persuaded policy makers today to take another step to bolster the world’s biggest economy. “The labor market is essentially gaining no traction at all,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who projected claims would rise to 380,000. “The Fed chairman’s concern about the labor market is warranted. A surge in the cost of crude oil led to the biggest increase in wholesale prices last month in more than three years. The producer price index climbed 1.7 percent after a 0.3 percent rise in July, the Labor Department also said today.
• Wholesale Prices in U.S. Rise Most in Three Years on Oil. Wholesale prices in the U.S. increased in August by the most in more than three years, reflecting a surge in energy costs. The producer price index climbed 1.7 percent after an increase of 0.3 percent in July, the Labor Department reported today in Washington. The median estimate in a Bloomberg survey of 79 economists called for a 1.2 percent gain. The gain in producer prices was the biggest since June 2009 and reflected the biggest jump in energy costs in three years. Compared with a year ago, companies paid 2 percent more for goods, after a 0.5 percent gain in the 12 months ended in July. The core index increased 2.5 percent in the year ended in August, matching the rise a month earlier. Fuel costs surged 6.4 percent from the prior month after five straight declines. Gasoline prices advanced 13.6 percent, while home heating oil costs increased 10.8 percent, the most since October 2010. The cost of finished foods rose 0.9 percent, the biggest gain since November and reflecting higher prices for eggs, vegetables and dairy products. Expenses for intermediate goods increased 1.1 percent, and those for crude goods jumped 5.8 percent.
• Fed Undertakes QE3 With $40 Billion in MBS Purchases a Month. The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment. “If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington. The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.” The central bank is “trying to bail out the fact that the president hasn’t led, that the Senate hasn’t passed a budget, that we have a horrible economic policy coming from our regulations and from our tax policy,” Paul Ryan said at a campaign event in Wisconsin.
• Oil Rises on Fed Stimulus And Mideast Unrest. Oil climbed as the Federal Reserve announced a plan to buy mortgage securities and on concern that protests in the Middle East and North Africa may curb supply. Futures rose after the Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month to boost growth. Protesters tried to storm the U.S. Embassy in Sana’a, Yemen. A Sept. 11 attack on the U.S. Consulate in Benghazi, Libya, killed the American ambassador, Chris Stevens, and three colleagues. Crude oil for October delivery advanced $1.03, or 1.1 percent, to $98.04 a barrel at 1:21 p.m. on the New York Mercantile Exchange. The contract initially dropped to $96.51 after the release of the Fed statement at 12:30 p.m. in Washington and earlier reached $98.58, the highest level since May 4. Futures are up 8.7 percent from this time last year. Brent oil for October settlement increased 78 cents, or 0.7 percent, to $116.74 a barrel on the London-based ICE Futures Europe exchange.
• Gold Advances Before Federal Reserve’s Monetary Decision. Gold futures topped $1,770 an ounce for the first time since February after the Federal Reserve announced plans to expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. “If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement. Prices jumped 3.1 percent last week amid speculation that the Fed would announce measures to stimulate growth, increasing demand for the precious metal as an inflation hedge. “Prices are reacting to the Fed’s announcements,” William Rhind, the managing director at ETF Securities in New York, said in a telephone interview. “The inflation worries will be back because of ‘‘open-ended purchases.’’ Gold futures for December delivery rose 2 percent to $1,768.80 an ounce at 1:19 p.m. on the Comex in New York. Earlier, prices jumped to $1,770.40, the highest for a most- active contract since Feb. 29.
• U.S. Embassy Calls Out Muslim Brotherhood Over Twitter Postings. The U.S. embassy in Cairo called out the Muslim Brotherhood on Twitter over differences between English and Arabic tweets about violent protests against an anti-Islamic video. The Muslim Brotherhood’s official English-language Twitter account @Ikwanweb reposted a message from the group’s deputy head, Khairat El-Shater, saying he was “relieved none of @USembassycairo staff was hurt” and expressing his desire that relations withstand the “turbulence” of events. The U.S. Embassy in Cairo wrote back: “Thanks. By the way, have you checked out your own Arabic feeds? I hope you know we read those too,” referring to the contradiction between the Brotherhood’s Arabic and English postings. The Brotherhood’s Arabic feed included messages that praised the protests, such as “Egyptians revolt for the Prophet’s victory in front of U.S. embassy.” Muslim Brotherhood leaders have called for a nationwide protest in Cairo tomorrow against an anti-Islamic video posted on YouTube. The video, which ridicules the Islamic Prophet Muhammad, also sparked demonstrations in Libya, Tunisia and Yemen.

Wall Street Journal:

• Anti-U.S. Protest Clashes Rage in Yemen, Egypt. Anti-American protests resumed in Egypt Thursday and spread to Yemen, where hundreds of young men breached the outer security rings of the fortified U.S. Embassy, battering a guard post with pick axes and setting vehicles aflame. Yemeni officials and Westerners here in the Yemeni capital said embassy staffers had been moved earlier to another location in the city guarded by armored vehicles, U.S. Marines and Yemeni security forces, leaving the embassy empty but for the protesters and Yemeni security forces. There was no confirmation of the embassy evacuation from American officials, two days after armed attackers at the U.S. Consulate in Benghazi, Libya killed the U.S. ambassador and three other Americans. In Cairo on Thursday, hundreds of Egyptian police in riot gear beat back crowds of young men from a street filled with tear gas outside the U.S. Embassy, injuring 16 people, as protests that began there Tuesday roiled on. The protests, initially triggered by reports of a U.S.-made video insulting the Muslim Prophet Muhammad, threatened a wider day of unrest across the Muslim world on Friday, the weekly holy day in Islam and the traditional day of demonstrations in the region. "Not our Prophet! He is a red line!" demonstrators shouted outside the U.S. Embassy in San'a, where the crowds burned the embassy's American flag. "Troops will not stand in our way in defending the honor of our prophet,'' said Abdullah al-Hashedi, a high-school student among the protesters in Yemen. Young men and teenagers managed to breach the outer walls of gates to the high wall guarding the embassy compound. Protesters ran in and out of range of Yemeni security officials to set security vehicles and tires alight outside the compound.
• Morsi Calls for 'End' to Film, Pledges Safety for Embassies. Egyptian President Mohamed Morsi pledged to protect diplomatic missions in Cairo after protesters incensed over an anti-Islam film overran the U.S. embassy there, but he called on the Obama administration to "put an end" to the film. Mr. Morsi's comments came a day after President Barack Obama appeared to question America's relationship with Egypt, telling a Spanish-language news channel: "I don't think we would consider Egypt an ally, but we don't consider them an enemy."
• Italy Says It Won't Seek Aid. For months, Italy pushed for a Europe-wide plan to buy the bonds of struggling countries as a path out of the euro-zone debt crisis. That plan now exists, but Italy has no intention of using it. "We don't think it's necessary, or desirable, to seek a program" of bond-market intervention, Italy's Economy Minister Vittorio Grilli said in an interview.
• OECD Indicators Point to Continuing Slowdown.
• Security Fears Cloud Libyan Oil Growth.
• The New World Disorder. As the U.S. retreats, bad actors begin to fill the vacuum.

CNBC.com:

• US Deficit Tops $1 Trillion For Fourth Straight Year. The U.S. federal budget deficit increased by $191 billion in August, topping $1 trillion for the fourth straight year. The Treasury Department says the deficit for the first 11 months of the 2012 budget year, which ends Sept. 30, totaled $1.16 trillion. That's 6 percent less than the same period last year. Tax receipts are higher because of modest improvements in the economy. Thursday's announcement means that President Barack Obama has run trillion-dollar deficits each year in office. Republican presidential candidate Mitt Romney has criticized Obama for failing to cut the deficit in half, as Obama pledged to do in early 2009. The White House in July forecast that the budget gap will total $1.2 trillion this year, down from $1.3 trillion last year.
• BRICs Are ‘Investment Disaster’; Now ‘Uninvestable’: Pro. Brazil, Russia, India, and China — together termed BRICs — combined were a marketing-led concept that have been an investment disaster, according to John-Paul Smith, emerging markets equity strategist at Deutsche Bank. “People were launching BRIC funds three, four, and five years ago. When Jim O’Neill made the call it was a fantastic call for a few years but then, as with these things, it was taken too far. The reason they are uninvestable is because of the extent of state intervention in those markets, which nobody would have foreseen three years ago,” Smith said.

Business Insider:

• Romney Campaign Responds To Fed Decision, Says It Is More Evidence Of Obama's Failure.
• Obama Isn't Sure If Egypt Is An 'Ally'.
• NBC Apologizes To Affiliates, Not Public, For Ignoring 9/11 Moment Of Silence.
• China's Shadow Banking System Is Collapsing.

Zero Hedge:

• Why The ECB's OMT Will Not Lead To European "Stabeeleetee".
• Live Webcast Of Politician Bernanke Explaining Open-Ended QE Two Months Before The Election.
• The One Big Problem With QE To Infinity.
• Foreclosure Stuffing.

New York Times:

• U.S. Lowers Forecast of Crop Yields for a 3rd Time as Record Heat Lingers.

Reuters:

• ECB policymakers at odds over bond-buy conditions. European Central Bank policymakers sent conflicting signals on Thursday over the conditions they want attached to their new bond-buying programme, with their apparent discord playing out in public just a week after the bank announced the plan. The new programme has buoyed markets' faith in policymakers' ability to get on top of the euro zone crisis and the ECB must be careful that internal divisions do not undermine the plan from the outset - as happened with its previous bond-buy tool. A board member, German Joerg Asmussen, appeared to take a tougher stance last Friday, saying the ECB will only buy a country's bonds if it commits to "hard reforms". Council member and Estonian central bank chief Ardo Hansson took a similar stance to Asmussen, saying the ECB may decide against buying a country's bonds if it finds the bailout programme the country signs up to is not strong enough. "If we look at a programme that is acceptable to a particular country and it turns out not to be strong enough, that is an ex-ante reason to say 'no they won't get the support from the ECB'," Hansson told MNI News in an interview. "I don't think we can formulate our policy to do whatever is needed for governments to ask for a programme that is acceptable to them," he added.
• New York OKs nation's first ban on super-sized sugary drinks. New York City passed the first U.S. ban of oversized sugary drinks on Thursday in its latest controversial step to reduce obesity and its deadly complications. By an 8-0 vote with one abstention, the mayoral-appointed city health board outlawed sugary drinks larger than 16 ounces nearly everywhere they are sold, except groceries and convenience stores. Violators of the ban, which does not include diet sodas, face a $200 fine.
• Greece denies report it will need third bailout.

Handelsblatt:

• Germany's govt debt will rise to EU2.2t by the end of 2012, a record 83% of GDP, citing a study by IfW Kiel economic institute. Debt as a percentage of GDP will rise 2.4 percentage points this year compared with 2011.
• The Christian Social Union, the sister party of German Chancellor Angela Merkel's CDU, called for the ECB to be reorganized, citing a document written by Gerda Hasselfeldt, a CSU lawmaker, and Thomas Silberhorn, European policy spokesman for the party. Decisions by the ECB should be made by an executive board and not the ECB's governing council, the CSU said. The CSU wants the size of a county's contribution to the ECB to be taken into account when decisions are made.
  

Augsburger Allgemeinen:

• Peter Gauweiler, a lawmaker from German Chancellor Angela Merkel's CSU Bavarian sister party, said German President Joachim Gauck cannot sign legislation on the ESM rescue program until the government has asked the country's parliament to agree to it, citing Gauweiler.

Europa:

• Europe Ready to Give Egypt $500 Million Euros Aid.