Weekend Headlines
Bloomberg:- Netanyahu Says Iran’s Nuclear Program Is in a ‘Red Zone’. Israeli Prime Minister Benjamin Netanyahu said Iran’s effort to develop nuclear weapons is now in a “red zone”, and the U.S. must set a clear “red line” that Iran can’t cross without risking a military attack. “They’re in the red zone,” Netanyahu said in an interview on NBC News “Meet the Press,” according to a transcript. “You know, they’re in the last 20 yards. And you can’t let them cross that goal line. You can’t let them score a touchdown.”
- European Squabbling on Currency Crisis Solution May Test Rally. Squabbling among European governments over the next steps needed to overcome the region’s sovereign debt crisis raised the specter of renewed turmoil as last week’s market rally eased pressure to forge a common path. A Sept. 14 European Union finance ministers meeting in the Cypriot capital of Nicosia deadlocked over the timetable for a more unified EU banking sector, with a German-led coalition pushing back against a more ambitious plan sought by France, Spain and Italy. The ministers also bickered over the terms of bailout requests and the role of the European Central Bank. “Experience suggests that just as day gives way to night, improvement gives way to policy complacency, which is then followed by renewed crisis,” Joachim Fels, chief economist at Morgan Stanley in London, wrote in a note yesterday.
- Finance Industry Warns of ‘Cliff Effect’ in ECB’s Bond Plan. The Institute of International Finance warned that the European Central Bank’s plan to buy sovereign bonds may result in a “cliff effect” if a country fails to meet conditions tied to the purchases. Termination of bond purchases could lead to an “abrupt” market correction, the IIF’s market monitoring group said in a statement today. Some countries may also be put off from seeking aid because of the requirements, said the Washington-based IIF, which represents more than 450 financial companies.
- German Savings Banks Disagree on Deposit Guarantees With Barroso. The German DSGV savings banks association opposes a plan by the European Commission for a common European deposit insurance with funds set aside by the lenders and cooperative banks, DSGV President Georg Fahrenschon said.
- Former China Banking Regulator Liu Calls Fed's QE3 Irresponsible. Liu Mingkang, former chairman of the China Banking Regulatory Commission, called the U.S. Federal Reserve's latest round of quantitative easing "irresponsible." QE3 is "irresponsible to the U.S., and also irresponsible to us," he said in an interview in Beijing, declining to elaborate.
- Hong Kong Adds Curbs to Cool Home Prices as Fed Starts QE3. Hong Kong has widened efforts to cool home prices that have gained almost 90 percent since early 2009, as the U.S. Federal Reserve’s third round of quantitative easing risks fueling asset bubbles in the city.
- China’s Stocks Drop Most This Month on Policy, Growth Concerns. China’s stocks fell the most this month on speculation the government won’t ease monetary policy as quickly as anticipated and after Citigroup Inc. said the economic growth slowdown will extend into next year. Poly Real Estate Group Co. plunged 6 percent, leading declines for property developers, after Chinese home sales slumped. China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, dropped more than 2 percent after Citigroup cited slumping export demand in cutting its growth forecast. The Federal Reserve’s economic stimulus plan will stoke inflationary pressure, reducing the room for looser policies, according to Industrial Securities, top-ranked for equity strategy research by New Fortune magazine. The Shanghai Composite Index (SHCOMP) slid 1.3 percent to 2,096.03 at 11:08 a.m. local time, dragged down by a 3.5 percent slide for a gauge of property stocks.
- China-Japan Island Dispute Grows in ‘Blow’ for Global Economy. A territorial dispute between China and Japan worsened as Prime Minister Yoshihiko Noda said he’ll demand the Chinese government ensure the safety of Japanese citizens, thousands protested in Chinese cities and Toyota Motor Corp. (7203) and Panasonic Corp. (6752) reported damage to their operations. Demonstrators took to the streets in a dozen cities across China including Beijing, Shanghai and Guangzhou, calling for Chinese sovereignty over disputed islands and the boycott of Japanese goods. In the city of Shenzhen, police used tear gas and water cannons to stop protesters from reaching a Japanese department store, Radio Television Hong Kong reported. “I intend to strongly demand that the Chinese government ensure security” of Japanese citizens, Noda said yesterday on public broadcaster NHK’s “Sunday Debate” program.
- China Commerce Minister Chen Deming says foreign trade faces greater challenges for a "period of time" in the future as it is hard for the external trade environment to show "obvious" improvements, according to a statement posted to the ministry's website yesterday.
- Singapore Exports Drop More Than Estimated on Electronics. Singapore’s exports fell more than economists estimated in August as shipments of electronics dropped and companies sold fewer goods to Europe. Non-oil domestic exports slid 10.6 percent from a year earlier, after a revised 5.7 percent increase in July, the trade promotion agency said in a statement today. The decline exceeded all 15 estimates in a Bloomberg News survey, where the median was for a 4 percent drop. Singapore’s electronics shipments by companies such as Venture Corp. fell 11 percent in August from a year earlier, after climbing 2 percent the previous month.
- Bullish Commodities Wagers at 16-Month High on QE3 as Citi Sees Gains. Bullish commodity wagers rose to a 16-month high just before the Federal Reserve’s pledge for more stimulus drove prices to a seventh weekly advance and banks from HSBC Holdings Plc to Citigroup Inc. forecast more gains. Hedge funds and other speculators lifted their net-long positions across 18 U.S. futures and options by 0.3 percent to 1.33 million contracts in the week ended Sept. 11, the most since May 2011, U.S. Commodity Futures Trading Commission data show. Copper holdings surged 25-fold to 17,509 contracts, the biggest gain on record. Gold bets climbed to the highest since Feb. 28, and silver wagers advanced for a seventh week.
- Fed’s Lacker Opposed QE3 as Tantamount to Fiscal Policy. Richmond Federal Reserve President Jeffrey Lacker said that he opposed the central bank’s third round of quantitative easing in mortgage-backed securities because allocating credit should be the province of fiscal authorities such as the U.S. Treasury or Congress. “I strongly opposed purchasing additional agency mortgage- backed securities,” Lacker said in a statement released yesterday by the Richmond Fed. “Such purchases, as compared to purchases of an equivalent amount of U.S. Treasury securities, distort investment allocations and raise interest rates for other borrowers.”
- Korea Department Store Sales Fall Most Since at Least ’05. Sales at major South Korean department stores declined the most since at least 2005 in August as Europe’s debt crisis weighed on consumer sentiment and a national holiday fell later in the year. Outlays at the three biggest chains declined 6.9 percent from a year earlier in August after a 1.3 percent drop in July, the Ministry of Knowledge Economy said in a statement today. Discount-store sales slipped 3.3 percent last month, the report showed. The ministry’s comparable sales data begin in January 2005.
- U.S. Banks Ignore Europe’s Lesson on Greed. Four years after the collapse of Lehman Brothers Holdings Inc. and the near-total paralysis of capitalism’s central nervous system -- the moment fear completely overwhelmed greed on Wall Street -- we are starting to see a few glimmers of hope. The good news: Several big banks have finally started taking steps to reform Wall Street’s out-of-control compensation system, which rewards bankers and traders with big bonuses for taking insane risks with other people’s money. The bad news: These banks are in Europe, and most of their U.S. cousins still just don’t get it.
Wall Street Journal:- Internal Rifts Color Anti-U.S. Protests. Fierce anti-American protests waned around the Middle East on Sunday, but the delicate, often tense politics that helped fuel them will be the defining dynamic in the region for some time, politicians and analysts warned. In Egypt, a presidency that is headed by an Islamist has struggled to connect with an old-regime Interior Ministry that is controlled and staffed by longtime opponents of political Islam. Along with the Egyptian presidency's own slowness to curb a protest initially called by Islamists in the wake of last week's release of a vulgar video depicting the Muslim prophet that fueled anger at U.S. foreign policy, the friction between Egyptian leadership and security forces appears to have undermined defense of the U.S. Embassy in Cairo as demonstrators stormed the compound.
- Slow Path to Policing Europe Banks. Agreeing What Will Make the New Banking Supervisor 'Effective' May Hinder Rapid Establishment. When euro-zone leaders decided in June to equip the European Central Bank with new powers to police banks in the currency union, the agreement appeared clear. "When an effective single supervisory mechanism is established," they declared, the euro zone's bailout fund would "have the possibility to recapitalize banks directly."
- SEC Keeps Wary Eye on Exchanges. Fining of NYSE Demonstrates Scrutiny Being Given to New Products Geared to High-Speed Traders.
- Union Votes to Keep Striking. Delegates for Chicago's public-school teachers union voted Sunday night to extend their members' strike into a second week, and Mayor Rahm Emanuel said he would go to court to force them back into the classroom. The city's first teacher strike in a quarter century, which has canceled classes for 350,000 students, has catapulted the nation's third-largest school district into the national debate over teacher evaluations and job security.
- Apple(AAPL) iPhone 5 Preorders Suggest Strong Demand. Apple Inc. appeared to have sold out of its initial inventory of the iPhone 5 just an hour after it began accepting preorders Friday, suggesting strong consumer interest.
- U.S. to File WTO Charges on China.
- The Video Did It. The White House finds a root cause of anti-American violence. The Obama Administration dispatched Ambassador to the U.N. Susan Rice to the talk shows Sunday to explain the outbreak of anti-American protests in the Arab world. Her message: It's all the fault of that 13-minute anti-Islamic video on YouTube. U.S. policies or foreign terrorists have little or nothing to do with it.
- The Magnitude of the Mess We're In. The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States.
Marketwatch.com:
- Beware China’s quantitative tightening. Watch the People’s Bank of China, not the Federal Reserve. Some analysts warn China’s money tap is running dry and this could trigger the next major deflationary shock.
Fox News:
- QE3 Sparks U.S. Credit Ratings Downgrade From Egan-Jones. Fearing the negative repercussions of the Federal Reserve’s latest easy-money program, ratings firm Egan-Jones once again slashed the U.S.'s credit rating on Friday. The latest downgrade brings the firm’s rating on the world’s largest economy down to “AA-,” which is three notches below the coveted “AAA” threshold. Egan-Jones said it believes the Fed’s third round of quantitative easing, which sent stock prices surging on Thursday, “will hurt the U.S. economy and, by extension, credit quality.” The firm said that while the program should boost equity markets, issuing additional currency and depressing interest rates through purchasing mortgage-backed securities will hurt the value of the U.S. dollar and cause a painful increase in commodity prices. “In our opinion, QE3 will be detrimental to credit quality for the U.S.,” Egan-Jones said.
Zero Hedge:
CNBC:
- European Lenders Hooked on Central Bank Cash. European banks are failing to wean themselves off central bank money, even though steep falls in the cost of collateralised borrowing over the summer mean some now have the option of funding via public markets. Like their US counterparts, European banks can now fund certain loans more cheaply than at any time in four years by bundling them into so-called asset-backed securities (ABS) and selling them to investors with interest backed by cash flow from repayments on products such as credit cards, car loans or mortgages. But the issuance of European ABS to investors is at a three-year low as banks use assets as collateral for central bank funds instead.
- Could Fed's QE Spiral Out of Control? If supply grows more rapidly than expected, prices of the securities could fall. In order to support the prices, the Fed would have to buy ever bigger amounts. This could become a dangerous spiral, in which the Fed has to continuously raise the amount of securities it is purchasing just to keep up with the new supply. Exiting this could be tricky.
- US Jobless Rate Really at 16%, Not 8.1%: Expert. The U.S. unemployment rate of 8.1 percent is probably double that number when you include a host of measures of the jobless rate that are not included in the official data, one professional tells CNBC.
- Romney Hits Obama on Looming 'Fiscal Cliff'. Republican presidential candidate Mitt Romney accused President Barack Obama on Saturday of standing by while a looming budgetary calamity unfolds in Washington.
- Occupy Wall Street Plans to Surround NYSE Monday. Occupy Wall Street marks its first anniversary on Monday, and, in a bid to rejuvenate a movement that has failed to sustain momentum after sparking a national conversation about economic inequality last fall, activists plan once again to descend on New York's financial district.
IBD:CNN:
- More Details Emerge on U.S. Ambassador's Murder. Three days before the deadly assault on the United States consulate in Libya, a local security official says he met with American diplomats in the city and warned them about deteriorating security.
Rasmussen Reports:
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday 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 four percent (4%) are undecided.
Reuters:
- Iran's Revolutionary Guards commander says its troops in Syria. Members of Iran's Islamic Revolutionary Guards Corps (IRGC) are providing non-military assistance in Syria and Iran may get involved militarily if its closest ally comes under attack, commander-in-chief Mohammad Ali Jafari said on Sunday. Jafari's statement is the first official acknowledgement that Iran has a military presence on the ground in Syria where an 18-month-old uprising has left tens of thousands dead. Western countries and Syrian opposition groups have long suspected Iran has troops in Syria. Iran has denied this.
- Japan's ambassador-designate to China dies in Tokyo - ministry. Japan's ambassador-designate to China, Shinichi Nishimiya, died on Sunday in a Tokyo hospital, the Foreign Ministry said, three days after he was found unconscious on a Tokyo street. Doctors were looking into the cause of death, ministry official Takashi Ariyoshi said in a statement, but no other details were available. Nishimiya, 60, was found unconscious on a street near his home on his way to work.
- Probe focuses on JPMorgan's monitoring of suspect transactions. A U.S. regulatory probe of JPMorgan Chase & Co's anti-money laundering systems is focusing on potential lapses in how the largest U.S. bank monitors suspect money transactions, according to people familiar with the situation. The probe appears to be focused on the systems and personnel that JPMorgan uses to safeguard against illicit money flows, the sources said, declining to be identified because they were not authorized to speak to the media.
- Exclusive: Ghost warehouse stocks haunt China's steel sector. Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place. China's demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth. As defaults have risen in the world's largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said. Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world's steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments. "What we have seen so far is just the tip of the iceberg," said a trader from a steel firm in Shanghai who declined to be identified as he was not authorized to speak to the media. "The situation will get worse as poor demand, slumping prices and tight credit from banks create a domino effect on the industry."
Telegraph:
Welt am Sonntag:
- Deutsche Bank Says Inflation in Europe 'Unavoidable'. Inflation will be a consequence of current policy to save the euro, citing an interview with co-CEO Anshu Jain.
Die Welt:
- Peter Gauweiler, a lawmaker from Merkel's CSU Bavarian sister party, asks German government to take the ECB to the European Court of Justice over its unlimited bond-purchase program, citing an interview.
Tagesspiegel:- Kauder Says Help to Indebted Nations Can Be Denied. Volker Kauder, the floor leader for Merkel's CDU, rejected concern that European indebted countries could be financially helped by the ECB without any conditions in return. The ECB bond program requires governments to seek aid from the rescue fund and the German parliament must have a says in this process, Kauder said. The Bundestag can always ask for conditions in return when a country requests aid and aid can be denied if the country does "in no case" accept this, citing Kauder. Kauder opposes plans to put German savings banks and cooperative banks under the control of a European banking supervisor.
WiWo:- The German government must build a reserve fund of $221 billion to be able to handle at short notice the country's liability risks linked to the ESM, lawmaker Peter Gauweiler said. Germany must now be in a position to meet the ESM's demands for capital at anytime in order to avoid a suspension of Germany's voting rights, Gauweiler said.
Frankfurter Allgemeine Sonntagszeitung:
- The European Commission would file a lawsuit at the European Court of Justice if the ECB went beyond its mandate, Commission President Jose Barroso said in an interview. Barroso said he "doesn't want a European super state".
Xinhua:
- China May Face More Pressure to Control Inflation On Fed's QE3. China needs to be more cautious with its monetary policies as quantitative easing in the U.S. will create more pressure to control inflation, citing Lu Zhengwei, chief economist at Industrial Bank Co.
Weekend Recommendations
Barron's:- Made positive comments on (JWN), (KTOS), (CMP), (MRK), (MCD), (IBM) and (ORCL).
- Made negative comments on (IRM).
Night Trading- Asian indices are -.75% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 112.50 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 95.50 -6.5 basis points.
- FTSE-100 futures -.38%.
- S&P 500 futures -.27%.
- NASDAQ 100 futures -.26%.
Morning Preview LinksEarnings of NoteCompany/EstimateEconomic Releases
8:30 am EST- Empire Manufacturing for September is estimated to rise to -2.0 versus -5.85 in August.
Upcoming Splits
Other Potential Market Movers- The Eurozone trade data, India interest rate decision and the China Home Price report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.
