Evening Headlines
Bloomberg:
- Ryan: What Kind of Country Are We Going to Be? (video) Vice Presidential Candidate Paul Ryan speaks at the Vice Presidential Debate.
- Hollande Robbed of Growth Driver as Companies Curb Investments. French
companies aren’t investing
much at home these days. A no-growth economy had already damped spending
when
President Francois Hollande’s government late last month unveiled a
budget that slaps companies with 10 billion euros ($13.1 billion) of tax
increases for next year. Executives are returning the favor by
suspending investments. “On investment, the word right now is
caution,” Stanislas de Bentzmann, co-chief executive officer of Devoteam
SA (DVT), a telecommunications services company based on the outskirts
of
Paris, said in an interview. “September was a terrible month,
growth came to a halt. Now the government is pouring oil on the
fire. The tax increases aren’t encouraging for business.”
- China Room to Ease Seen Fading as Inflation Lull Set to End. A U.S. drought that pushed soybean
and corn prices to records is adding to the risk of a rebound in
inflation in China, where consumer-price gains were probably
close to the slowest in two years in September. Inflation was 1.9 percent last month, according to the
median forecast in a Bloomberg News survey before a report on
Oct. 15. Credit Agricole CIB says the rate may approach 4
percent by year-end and Citigroup Inc. estimates a pace of about
3.5 percent. The prospect of faster price gains in coming months may
encourage policy makers to refrain from cutting interest rates
for a third time this year, contrasting with reductions in
Brazil, South Korea and Australia and adding to the risk
economic growth will be the weakest since 1999. Increased grain
costs are feeding into pork prices and the government is also
battling to prevent a rebound in the housing market. “Inflation will rise in the fourth quarter as pork and
other food prices are expected to climb and housing costs are
creeping up,” said Dariusz Kowalczyk, senior economist and
strategist at Credit Agricole CIB in Hong Kong. “This means
there is no room for the central bank to cut interest rates.”
- Copper
Traders Most Bearish Since June on Economies: Commodities. Copper
traders are the most bearish in four months on mounting concern that
demand for industrial metals will weaken as growth slows from China to
Europe.
- Japan and China Agree to Hold Talks on Dispute After Noda Call. Japan
and China agreed to talks aimed at reducing tensions over a territorial
dispute a day after Japanese Prime Minister Yoshihiko Noda warned that
without negotiations Asia’s two biggest economies would suffer. Officials from both countries agreed to hold vice-
ministerial level discussions at an unspecified date, Japan’s
Foreign Ministry said last night. Shinsuke Sugiyama, director-
general of the ministry’s Asia-Pacific bureau, met with Chinese
counterpart Luo Zhaohui in Tokyo yesterday and began
preparations for the talks, according to a statement.
- Japan’s Government Cuts Economic Assessment for Third Month. Japan’s government cut its
assessment of the nation’s economy for a third straight month,
the longest streak since the 2009 global recession.“The economic recovery is in a weak tone recently due to
deceleration of the world economy,” the Cabinet Office said in
its monthly report for October released in Tokyo today. The cut
in the government’s assessment marks the longest run of
downgrades since the five months through February 2009.
Wall Street Journal:
- Biden and Ryan Slug It Out, Differences on Display. If Americans wanted to know what a real debate sounds like, they got
one Thursday night, courtesy of the two men who are supposed to be
taking second billing in the presidential race.
Vice President Joe Biden and Rep. Paul
Ryan provided millions of Americans the kind of slugfest the
presidential contenders themselves didn't provide in their first debate.
It was potent and lively, and nobody could walk away wondering what the
differences were between what the two parties stood for.
- Best Buy(BBY) Plays Web Hardball. Retailer Will Match Online Prices, Shrugs off 'Showrooming'.
- Spain Says Downgrade Won't Affect Plans. Officials Will Still Try to Raise Money on Financial Markets Despite S&P Move That Leaves Rating Close to Junk Status. Spanish officials voiced defiance on Thursday after a credit
downgrade left the country's rating close to junk status at two firms,
saying the surprise move wouldn't affect their plans to raise money on
financial markets. Financial analysts said Wednesday's move by
Standard & Poor's Ratings Services is likely to increase pressure on
one of the euro zone's most-fragile economies to seek a European Union
bailout.
CNBC:
- Green Regs May Make NYers See Red Over Oil Bills. Fuel price shocks that had Californians gasping at record high pump
prices over $5 a gallon may next hit heating oil users in New York,
where depleted supplies and new green regulations could push bills up
sharply this winter.
- US Fiscal Cliff Is 'Major Concern' for World: IMF's Zhu. The U.S. needs to provide more clarity to ease fears about the “fiscal
cliff’” of tax hikes and spending cuts that are due to kick in in
January, Zhu Min, deputy managing director of the International Monetary
Fund (IMF) said on Friday. “It’s very clear that if the whole tax package moves off the table it
will immediately bring the U.S. into a recession, which will have a huge
negative impact on the whole world,” Zhu told CNBC on the sidelines of
the IMF’s semi-annual meetings in Tokyo.
Zero Hedge:
Business Insider:
Washington Post:
- Ryan presses Biden on Libya. (video) The
debate started with foreign policy, a topic absent from the
presidential debate last week. Rep. Paul Ryan accused Vice President
Biden tonight – and by extension President Obama – of failing to
candidly acknowledge the facts surrounding the recent deadly attack on
the U.S. diplomatic in Libya. The
Sept. 11 strike on the U.S. consulate in Benghazi, Libya, which killed
U.S. Ambassador J. Christopher Stevens and three other Americans, has
exposed the Obama administration in the campaign’s stretch run on an
issue (national security) it considers a political strength. The attack,
connected to the al Qaeda affiliate in North Africa, was bad enough.
But the administration’s changing explanation for what happened that day
– a spontaneous protest or a coordinated attack on a thinly protected
U.S. mission? – has drawn Republican accusations of a White House
cover-up to avoid a politically damaging acknowledgement of a terrorist
strike. “It took the
president two weeks to acknowledge this was a terrorist attack,” Ryan
said. “If we are hit by terrorists we’re going to call it what it is: A
terrorist attack.”
NY Times:
- Panetta Warns of Dire Threat of Cyberattack on U.S. Defense
Secretary Leon E. Panetta warned Thursday that the United States was
facing the possibility of a “cyber-Pearl Harbor” and was increasingly
vulnerable to foreign computer hackers who could dismantle the nation’s
power grid, transportation system, financial networks and government.
Reuters:
- Permanent fix of U.S. housing to take time: Home Depot(HD) CEO. The U.S. housing market is starting to thaw, but it could be two years before a full-blown recovery takes hold,
Home Depot Inc Chief Executive Frank Blake said on Thursday. The
world's largest home improvement retailer has seen the benefits of the
nascent U.S. housing recovery as professional contractors have started
buying more in recent months. "It's starting to recover, but we're a long way away from true recovery,"
Blake, 63, told Reuters in a wide-ranging interview that touched on his
views of the so-called Fiscal Cliff to why he sees the internet as Home
Depot's next frontier. The comments came less than a week after two
influential Federal Reserve officials blamed the disappointing rebound
in U.S. housing for continuing to trip up the country's overall economic
recovery. "This housing market's been very, very bad and it's going to take some time to recover," Blake said.
- Amazon(AMZN) CEO confirms Kindle sold "at cost". Amazon Chief
Executive Jeff Bezos confirmed on Thursday that the online retailer
sells its Kindle e-reader "at cost", with profit coming instead from
sales of online content.
- AMD(AMD) warns of revenue drop as PC demand crumbles. Chipmaker Advanced Micro Devices Inc said on Thursday its third-quarter revenue likely fell 10 percent from
the previous quarter as a weak global economy and growing preference for
tablets slams the PC industry. AMD's pre-announcement is the
latest warning about the PC industry. It follows Intel's warning in
September that its quarterly revenue would be much lower than expected.
- Summers says payroll tax break should be extended. President
Barack Obama's former economic aide, Larry Summers, said on Thursday
that the payroll tax break for 160 million Americans should be extended
in order to help promote economic growth. The payroll tax, which
funds the federal Social Security retirement program, is set to revert
to 6.2 percent from 4.2 percent at the end of the year. "This is not
the right moment to repeal the payroll tax cut," Summers told the Center
for American Progress think tank. "It is $120 billion that enables
cash-strapped families to spend money on what they need and provides
incentives certainly for small businesses and perhaps beyond," he said.
Summers said it was critical to spur growth and increase demand and
warned that the country was still at risk of a "lost decade" of the
"great stagnation."
- India's Infosys(INFY) Cuts Outlook as Global Clients Squeeze Costs.
- China Sept vehicle sales down 1.8 pct yr-on-yr.
South China Morning Post:
- ECB's Coeure says c. bank won't be bullied: paper. The European Central Bank will not cave in to market pressure and buy
bonds of euro zone governments whose borrowing costs have reached
unsustainable levels if the country does not comply to the ECB’s rules,
Executive Board member Benoit Coeure said. The ECB impressed markets last month by launching a new and
potentially unlimited bond purchase programme under which it will buy
governments’ short-term bonds once they have signed up to a European
bailout programme. In an interview to be published on Friday in German newspaper Die
Welt, Coeure doused hopes that the ECB would intervene regardless of
whether its conditions were met once a country’s borrowing costs soared. “We will not cave in, but only intervene once our conditions have
been met. We will prove it to you,” Coeure said, adding that the bank
would only buy bonds if the International Monetary Fund was involved,
even if only to monitor the programme. IMF Managing Director Christine Lagarde on Thursday said that
struggling European countries such as Greece should be given more time
to reduce their budget gaps. Coeure, however, stressed that the ECB would not help Greece beyond
providing solvent banks with liquidity in return for sufficient
collateral. “It has to be clear that the central bank will not finance
governments via the printing press, neither direct nor indirect. This
means: If further emergency loans to banks are purely for buying
government bonds, then the ECB Council should not approve it,” Coeure
said.
China Daily:
- China's
chances of meeting its 2012 foreign trade growth target of 10% are
"hopeless," citing a "well-placed" person. The newspaper cites the
European debt crisis as a reason.
China Securities Journal:
- Chinese
manufacturers based in Yiwu in the eastern province of Zhejiang
received fewer Christmas orders this year because of weak demand from
overseas clients. Fewer holiday orders may hurt China's exports in
September and 3Q, citing Zhang Lei, an analyst at Minsheng Securities Co.
China Business News:
- Chinese
banks won't likely pick up lending in 4Q as demand from companies
remains weak, citing officials at commercial banks. Banks favor loans to
state-run enterprises and their subsidiaries and have been more picky
about the sectors they lend to, the report cites officials as saying.
Economic fundamentals and poor earnings have deterred banks from
lending, the report said.
Shanghai Securities News:
- Researchers
with China's Ministry of Land and Resources called for "appropriately"
increasing land supplies to ease demand pressure and help stabilizing
home prices, citing a meeting.
Economic Information Daily:
- Chinese
large and medium-sized steelmakers had a combined loss of 4.2b yuan in
August, citing an official with the China Iron & Steel Association.
Steelmakers had a combined loss of 3.2b yuan in Jan.-Aug. period, the
report says.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 130.0 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 109.50 -1.5 basis points.
- FTSE-100 futures -.35%.
- S&P 500 futures +.14%.
- NASDAQ 100 futures +.06%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (JPM)/1.20
- (WFC)/.86
- (WBS)/.46
- (IGTE)/.37
- (DRH)/.18
Economic Releases
8:30 am EST
- The Producer Price Index for September is estimated to rise +.8% versus a +1.7% gain in August.
- The PPI Ex Food & Energy for September is estimated to rise +.2% versus a +.2% gain in August.
9:55 am EST
- Preliminary Univ. of Mich. Consumer Confidence for October is estimated to fall to 78.0 versus 78.3 in September.
2:00 pm EST
- The Monthly Budget Statement for September is estimated at $75.0B versus -$62.7B in August.
Upcoming Splits
Other Potential Market Movers
- The
Eurozone Industrial Production data, IMF/World Bank Group Annual/Spring
Meetings and the (MU) Fall Analyst Conference could also impact trading
today.
BOTTOM LINE: Asian
indices are mostly lower, weighed down by technology and real estate
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.
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- VIX 15.58 -4.36%
- ISE Sentiment Index 122.0 -2.40%
- Total Put/Call .86 -14.0%
- NYSE Arms .83 -43.19%
Credit Investor Angst:
- North American Investment Grade CDS Index 97.30 bps -1.72%
- European Financial Sector CDS Index 180.57 bps -2.87%
- Western Europe Sovereign Debt CDS Index 141.18 bps -.20%
- Emerging Market CDS Index 222.87 bps -2.24%
- 2-Year Swap Spread 11.75 -.25 basis point
- TED Spread 24.5-1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -25.5 -1.5 basis points
Economic Gauges:
- 3-Month T-Bill Yield .10% unch.
- Yield Curve 140.0 -5 basis points
- China Import Iron Ore Spot $115.80/Metric Tonne -1.61%
- Citi US Economic Surprise Index 45.70 +3.1 points
- 10-Year TIPS Spread 2.47 -8 basis points
Overseas Futures:
- Nikkei Futures: Indicating +49 open in Japan
- DAX Futures: Indicating -17 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech sector longs and index hedges
- Disclosed Trades: None
- Market Exposure: 25% Net Long
Bloomberg:
- Spanish Bonds Risk Forced Selling as Rating Approaches Junk. Spanish
government bonds are facing a selloff by investors concerned that the
nation’s credit rating will be cut to non-investment grade after
Standard & Poor’s lowered its ranking for the debt to one level
above junk. Spain’s two-year notes fell for a fourth day, the longest
run of declines in six weeks, after New York-based S&P said
yesterday it had cut the rating two levels to BBB-. While data
compiled by Bloomberg News shows that about half the time government
bond yields move in the opposite direction suggested by new ratings, a potential cut to junk may prompt selling by investors who use bond indexes to determine their holdings of fixed-income assets. Moody’s Investors Service is studying a possible downgrade for Spain
from its current Baa3 level, its lowest investment- grade rank, and
Fitch Ratings scores the country BBB, two steps above junk.
- Schaeuble Clashes With IMF, Rejects Government Writeoffs. German Finance Minister Wolfgang Schaeuble said European governments can’t accept losses on Greek
debt holdings, clashing with the International Monetary Fund. “At
the International Monetary Fund, there are indeed
considerations that if the total Greek debt was reduced by means
of a haircut borne by public creditors, the gap would be easier to
close” in terms of Greece’s debt sustainability, Schaeuble said in Tokyo
today before a meeting of finance chiefs.
- Spain
Downgrade Undermines ESM's Credit Rating: Chart of the Day. Spain's
downgrade threatens to undermine the European Stability Mechanism by
accelerating the slide in collective ratings of nations backing the
bailout fund. The debt crisis has dragged the average grade almost three
steps lower since the fund was given the go ahead in 2010 to the border
of single A, compared with the top ranking the ESM holds. Spain's
downgrade increases the amount nations backing the bailout fund may have
to pay, meaning "they are more likely to be cut and the ESM gets
downgraded," said Stuart Thomson, who helps oversee about $120 billion
at Ignis Asset Management in Glasgow, Scotland.
- Goldman’s Cohn Sees ‘Small’ Chance Euro Area Will Stick Together. Goldman
Sachs Group Inc. (GS) President and Chief Operating Officer Gary D.
Cohn sees a “small” probability that the euro area will stick together,
saying it’s more likely that some countries will exit to pursue growth.
“In federalism, you create a unified Europe, where the countries that
are thriving because of the currency subsidize the countries that are
contracting because of the currency,” Cohn said in an interview in Tokyo
today. “I would put a relatively small probability of that happening.”
- Italian Yields Rise at Auction as Concern on Spain Mounts. Italy’s borrowing costs rose at an
auction of three-year debt today on concern that Spain’s
reluctance to request a bailout will weigh on Italian bonds. The Rome-based Treasury sold 3.75 billion euros ($4.8
billion) of its benchmark three-year bond to yield 2.86 percent,
more than the 2.75 percent at the last auction of the same
securities on Sept. 13. Investors bid for 1.67 times the amount
offered, up from 1.49 times last month.
- China’s Banks Said to Resist Cutting Lending Rates. China’s biggest banks are resisting
government pressure to lower borrowing costs amid an economic
slowdown as they seek to maintain the profitability of their
lending operations, officials at the top four lenders said. The banks are limiting discounts for their best corporate
clients to 10 percent of the benchmark lending rate, the
officials said, asking not to be identified as they’re not
authorized to speak publicly. The central bank in July began
allowing lenders to offer credit at 30 percent less than the
benchmark rates. Keeping borrowing costs high may blunt efforts to revive
growth that has decelerated for six straight quarters in the world’s second-largest economy. Credit expansion is also limited by the central bank’s loan quotas, the officials said,
highlighting the conflicting efforts within China to curb loan
defaults while boosting funding for infrastructure projects.
- Iron-Ore
Swaps Extend Decline as Chinese Buying Seen Weakening. Iron-ore swaps
fell for a second day on speculation Chinese demand weakened for the
commodity used to make steel while higher prices drew more cargoes.
Fourth-quarter contracts dropped 2.6% to $110.50 a dry metric ton as of
1:37 pm in London. Higher physical prices drew miners to offer more
cargoes as buying slowed, said Kerry Deal, head of iron-ore and bulk
derivatives at Jfferies Hong Kong Ltd.
- Trade Deficit in U.S. Widened in August as Exports Dropped. The U.S. trade deficit widened in August as slower global growth reduced demand for American exports. The
gap grew 4.1 percent to $44.2 billion from $42.5 billion in July,
Commerce Department figures showed today in Washington. Exports
decreased to the lowest level since February. A separate report showed
the cost of goods shipped to the U.S. rose more than forecast in
September. A stagnant Europe and slower growth in China and other
emerging markets may curtail demand for American products, which had
been a source of strength for U.S. manufacturers earlier this year. At
the same time, the pickup in energy costs may push up the nation’s
import bill, keeping the trade gap elevated. “For the first time,
the U.S. economy is gradually feeling the impact from the global growth
slowdown,” said Harm Bandholz, chief economist at UniCredit Group in
New York, who forecast the deficit would widen to $44 billion. “In the
third quarter, the weaker global economy will leave its mark also on the
U.S.”
- Corn Surges to Three-Week High as USDA Sees Smaller World Supply. Corn futures jumped to a three-week high after a government report
showed global inventories will drop more than expected as the worst U.S.
drought in more than 50 years cuts output by the most since 1996. Worldwide
inventories on Oct. 1 will be 117.27 million metric tons, down from
123.95 million predicted a month ago and 131.54 million estimated this
year, the U.S. Department of Agriculture said today. Reserves as a
percent of consumption will fall to 13.7 percent, the lowest since 1974,
USDA data show. Stockpiles in the U.S., the largest grower and
exporter, will fall 37 percent to 15.73 million tons, from last year.
“This
report signals there is absolutely no supply cushion,” Dale Schultz,
the buyer-relations manager for AgWest Commodities LLC in Holdrege,
Nebraska, said in a telephone interview. “We have to raise prices and reduce demand immediately to prevent a real shortage.” Corn
futures for December delivery rose 4.7 percent to $7.715 a bushel at
10:32 a.m. on the Chicago Board of Trade, heading for the biggest gain
since Sept. 28. The price earlier touched $7.7425, the highest since
Sept. 17.
Wall Street Journal:
- Biden-Ryan Debate Likely to Be Combative.
Joe Biden and Paul Ryan arrived in Kentucky for a Thursday night
debate that has potential to either accelerate or stall the momentum
gathering behind Mitt Romney's come-from-behind presidential bid. The debate, to be broadcast nationally at 9 p.m. ET from Centre College
in Danville, is expected to be more combative than last week's faceoff
between the Republican candidate and President Barack Obama, whose
lackluster performance disappointed his supporters.
- U.S. Growth Is Expected To Be Slow Into 2013.
Fox News:
- Greek unemployment rate hits 25.1 percent in July as recession heads for sixth year. Unemployment in Greece hit a record
high of 25.1 percent in July as the country's financial crisis continues
to exact its heavy toll, official figures showed Thursday. All indications are that unemployment in Greece will
continue to rise. The economy has shrunk by around a fifth since the
recession started in 2008 and youth unemployment has pushed way above 50
percent. The economy is expected to enter a sixth year of recession
next year. "This is a very dramatic result of the recession," said
Angelos Tsakanikas, head of research at Greece's IOBE economic research
foundation.
CNBC:
Zero Hedge:
Business Insider:
Examiner.com:
- California independents switch to Romney. While no one expects President Barack Obama to lose California on Nov. 6, former Gov. Mitt Romney is gaining on him. Romney
has gained 8 points in California over the past month, according to a
poll released Thursday by Survey USA. Obama now leads Romney 53-39, as
opposed to 57-35 a month ago. “Obama carried California by 24 points in
2008, “ the pollster said,
“so today Obama is running 10 points weaker than he ran 4 years ago, 8
points weaker than he ran 4 weeks ago. Among Independents, Obama led by
14 in September, trails by 9 in October, a 23-point right turn among the
most coveted voters.” Independent voters prefer Romney 44-35 percent, according to the poll.
What makes Romney’s gain impressive is that only nominal amounts of
money have been spent in California because it has not been considered
friendly territory, and it has made more strategic sense to spend
campaign dollars elsewhere.
Reuters:
Financial Times:
- Brazil stocks feel impact of intervention. Brokers
trying to hawk Brazilian shares to international fund managers in New
York and London have had a tough time of it recently. Many joke they have been almost forcibly ejected from the offices of
the top “buyside” houses, who are smarting after seeing the share prices
of many large Brazilian companies plunge on the back of government
intervention.
Telegraph:
Der Spiegel:
- Top German Economists Say Greece Is Lost. Several top German economic institutes on Thursday warned that
German growth is slowing as the country continues to be hampered by the
ongoing euro-zone debt crisis. And Greece, they say, will be unable to
"free itself from its debt burden" and will need another haircut.
The Jerusalem Post:
Haaretz.com:
Style Underperformer:
Sector Underperformer:
- 1) Homebuilders -1.80% 2) Disk Drives -.60% 3) Restaurants -.32%
Stocks Faling on Unusual Volume:
- PCS, CLMT, CNSL, CBS, DG, FDO, MIPS, AAPL, HD, BLX, MLU, DLTR, CTXS, SWC, RGLD, CMN, ONE, CNQR, YUM, SBAC, COST, CERN, CMI, SI, COR, CMG, EXPE, EW, SBS and WSO
Stocks With Unusual Put Option Activity:
- 1) NFX 2) HTZ 3) FAST 4) S 5) SWC
Stocks With Most Negative News Mentions:
- 1) PDCE 2) FB 3) FSLR 4) HUM 5) PNC
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Oil Service +1.39% 2) Steel +1.37% 3) Retail +1.25%
Stocks Rising on Unusual Volume:
- S, PVTB, DISH, PCS, CTB, FAST, BKS, IRM, WLT and BTU
Stocks With Unusual Call Option Activity:
- 1) CLWR 2) BKS 3) NRG 4) S 5) PXP
Stocks With Most Positive News Mentions:
- 1) WEN 2) GEL 3) MSFT 4) MCO 5) GG
Charts:
Evening Headlines
Bloomberg:
- Spain Downgraded to One Level Above Junk by S&P on Risks.
Spain’s debt rating was cut to one level above junk by Standard &
Poor’s, which cited mounting economic and political risks as the
government considers a second bailout. The
country was lowered two levels to BBB- from BBB+, New York-based
S&P said in a statement yesterday. S&P assigned a negative
outlook to the nation’s long-term rating and lowered the short-term
sovereign level to A-3 from A-2. “The negative outlook on the
long-term rating reflects our view of the significant risks to Spain’s
economic growth and budgetary performance, and the lack of a clear
direction in euro-zone policy,” S&P said. “The deepening economic
recession is limiting the Spanish government’s policy options.”
- Euro Falls Against Most Peers After S&P Downrades Spain. The euro weakened against most of
its major counterparts after Standard & Poor’s cut Spain’s debt
rating to one level above junk. The Dollar Index (DXY) climbed to a
one-month high before Italy sells bonds today amid concern Europe’s debt
crisis is deepening, boosting demand for the greenback as a haven.“I
can see further weakness to the euro from here,” said Imre Speizer, a
strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s
second-largest lender. “If the fiscal outlook is
much worse in Spain, it could fall to junk status.”
- EADS-BAE Failure Shows Road to Integrated EU Runs Through Berlin.
In effectively scuttling the planned merger between European
Aeronautic, Defence & Space Co. and BAE Systems Plc (BA/), Germany
demonstrated the road to European integration runs through Berlin. As Chancellor Angela Merkel’s government has shown in
almost three years of managing the euro-area financial crisis,
the interests of German taxpayers trump strategic designs --even
in defense, where German spending is about half of Britain’s as
a share of its economy.
- Japan Machinery Orders Slide 3.3% as Economy Risks Shrinking.
Japan’s machinery orders fell more than expected in August, a sign that
companies will cut back spending as global demand slows. Orders, an
indicator of capital spending in three to six months, declined 3.3
percent after rising 4.6 percent in July, the Cabinet Office said today
in Tokyo. The median of 26 estimates in a Bloomberg News survey was for a 2.3 percent drop.
Today’s data follow government reports last month showing declines in
industrial output and exports, underscoring the risk of a contraction in
gross domestic product. In an interview in Tokyo, Japanese Prime
Minister Yoshihiko Noda yesterday called for talks to contain economic
damage from a dispute with China over East China Sea islands. “There’s a
growing number of people who are pessimistic about the economic
outlook,” Jun Kawakami, an economist at Mizuho Securities Co. in Tokyo,
said before the report. “It’s really hard to see any signs that companies will increase capital spending.”
- Disputed Islands With 45 Years of Oil Split China, Japan. China and Japan sat down for talks
and agreed to jointly develop a natural gas field under the East
China Sea, defusing a dispute between Asia’s biggest economies
over who owns the reserves. That was in 2008. The accord, hailed as a model for cooperation at the time,
has yet to be carried out and the countries now face a new
territorial dispute, also in the East China Sea. The quarrel
over who owns the uninhabited islands called Diaoyu by China and
Senkaku by Japan is again linked to a prize beneath the ocean
that may hold enough oil to keep China running for 45 years.
- Japan Electronics Emulates Detroit Autos Before Bankruptcy: Tech.
- Bank of Korea Cuts Interest Rates as the Economy Slows. The Bank
of Korea cut borrowing costs for a second time this year, adding to
government efforts to avoid a deeper slowdown amid Europe’s debt crisis
and a cooling global economy. Governor Kim Choong Soo and his board
lowered the benchmark seven-day repurchase rate to 2.75 percent from 3
percent after a surprise reduction in July, the central bank said in a
statement in Seoul today. The decision was predicted by 13 of 16
economists surveyed by Bloomberg News, with the rest projecting no
change. “Korea’s export-oriented economy has struggled due to weakness
in Europe, the U.S. and China, all of which are important markets for
its exporters,” Sukhy Ubhi, an economist at Capital Economics Ltd. in
London, said before the release.
“Global growth is likely to remain weak not just for the
remainder of this year but in 2013 too. The BOK will loosen
policy both this year and next.”
- China Stocks Fall on Economic Concerns. China’s
stocks fell after auto sales unexpectedly dropped and the 21st Century
Business Herald reported new bank loan growth slowed last month.
SAIC Motor Corp. (600104) led declines for automakers after Chinese
vehicle sales shrank for the first time in eight months. Jiangxi Copper
Co. (600362) and Aluminum Corp. of China Ltd. retreated more than 1
percent as Goldman Sachs Group Inc. said copper and aluminum demand in
the country is set to plunge by 2014. Industrial & Commercial Bank
of China Ltd. paced losses for lenders on a 21st Century report that new
bank loans for the four biggest banks in September were less than the
previous month. The Shanghai Composite Index (SHCOMP) slid 0.5 percent
to 2,108.84
at 9:54 a.m. local time.
- U.S. Sets Anti-Dumping Duties on China Solar Imports.
The U.S. Commerce Department set
anti-dumping duties ranging from 18.32 percent to 249.96 percent
on solar-energy cells imported from China, reducing preliminary
penalties imposed on Trina Solar Ltd. (TSL) and raising them slightly on
Suntech Power Holdings Co. The duties, the result of a complaint
brought by the American unit of Bonn-based SolarWorld AG (SWV), may
worsen trade relations between the U.S. and China, the world’s largest
economies. The countries have sparred over government support for clean
energy as President Barack Obama and Republican challenger Mitt Romney
each pledge tough action on China ahead
of next month’s U.S. election.
Wall Street Journal:
- Botched in Benghazi. New evidence on the Libya debacle and false White House spin. At Wednesday's House oversight hearings into the attack on the U.S.
diplomatic mission in Libya, Democrats protested loudly about a GOP
political witch hunt. If only such alleged partisanship were always so
educational. The Congressional investigation has in a few hours brought
greater clarity about what happened before, during and after the events
of 9/11/12 than the Obama Administration has provided in a month. Among the revelations:
- PC Sales Go Into a Tailspin. The personal-computer business has entered a tailspin. Reports from research firms Wednesday provided new details about the
industry's worsening condition, triggered by factors that include
cannibalization by tablet computers, sluggish economic conditions and
slowing PC sales in emerging countries. The grim signs come as
Microsoft Corp. and its allies are hoping to generate excitement in late
October with a new version of Windows and new devices designed to run
the software. Researchers IDC and Gartner Inc. said PC shipments
in the third quarter fell more than 8% from a year earlier, the steepest
drop since at least 2001.
- Fed Governor: Put Cap On Big Financial Firms.
- Obama and the L-Word. 'Liar' is potent and ugly—with a sleazy political pedigree. The election campaign of the 44th U.S. president is now calling
another candidate for the American presidency a "liar." This is a new
low. It is amazing and depressing to hear this term being used as a
formal strategy by people at the highest level of American politics. "Liar" is a potent and ugly word with a
sleazy political pedigree. But "liar" is not being deployed only by
party attack dogs or the Daily Kos comment queue. Mitt Romney is being
called a "liar" by officials at the top of the Obama re-election
campaign.
Fox News:
- Downplaying Libya Attack Proves Fateful for Obama.
Team Obama’s decision to downplay the attack on the U.S. consulate in
Benghazi, Libya has turned out to be a fateful one. President Obama’s
single best advantage going into the heat of the 2012
campaign was on terrorism and national security.
MarketWatch.com:
CNBC:
- Bank of Korea Sharply Cuts Economy's Growth Forecasts. South Korea's central bank sharply cut its economic growth forecasts for
this year and next after trimming interest rates for the second time
this year to shore up Asia's fourth-largest economy on Thursday, its
governor said. The Bank of Korea cut this year's economic growth forecast to 2.4
percent from 3.0 percent set in July and that for next year to 3.2
percent from 3.8 percent, Governor Kim Choong-soo told reporters.
- Earnings Season Stinging Stocks.
Zero Hedge:
Business Insider:
Reuters:
- Yuan hits record high as PBOC signals tolerance of appreciation.
- BoE's Weale casts doubts on QE, warns on triple dip - paper. Another round of quantitative
easing may not be "compatible" with the Bank of England's
inflation target, and does not provide a definite answer to
boost Britain's economy, Martin Weale, a top BoE policymaker,
said in comments published on Thursday. "It is certainly not self-evident to me in the light of the
apparent stickiness of inflation that substantial extra support
for the economy would be compatible with the inflation target.
I am concerned about the stickiness of inflation," Weale is
quoted as saying in the Daily Mail newspaper. Weale also warned that Britain could suffer a 'triple-dip'
recession, meaning the economy slides back into negative growth
later this year after the briefest of revivals.
- Democrats fret about Big Bird's star turn in Obama campaign. In 2008, singer will.i.am
provided Barack Obama's presidential campaign with music for its
signature anthem, "Yes We Can." On Tuesday, at a rally for Obama
in Columbus, Ohio, the performer chose to play something new:
the theme song for "Sesame Street." For Obama's supporters, already dismayed by the president's
halting performance in last week's debate with Republican Mitt
Romney, that change in tune is a new source for concern as they
fret that a children's TV show has become a new backdrop for
their candidate's campaign. In a moment of tightening polls and climbing anxiety for
Obama's supporters, the president's decision to grant Big Bird a
starring role in his campaign this week has presented another
reason to reach for the Alka-Seltzer. Since the debate, Obama has been piling on, joking about
Romney's designs for the TV show at every campaign stop. Conservatives have been crowing that the silly turn in the
campaign diminishes the president. "President Obama tried to give the bird to Mitt Romney-but
wound up laying an egg," the New York Post wrote Wednesday.
- California misses September revenue target by $162.5 mln. California's September
revenue came in $162.5 million, or 2.2 percent, below projection
in the state budget as revenue from sales and corporate taxes
fell below expectation, State Controller John Chiang's office
said on Wednesday.
Telegraph:
- Why the IMF has got it so hopelessly wrong on the euro crisis. David Cameron and George Osborne are not for turning, but the International
Monetary Fund is plainly made of flimsier stuff. The latest flurry of
economic analysis from the IMF – to coincide with the annual meeting in
Tokyo – has revealed a not so subtle change of heart over fiscal austerity.
- IMF fears 'credit shock' in Spain if Rajoy blocks rescue. The International Monetary Fund has issued a veiled warning that Spanish bond
spreads could surge to a record 7.5pc and push the country into a deeper
crisis if premier Mariano Rajoy continues to drag his feet on a bail-out
request.
The Franco-Spanish tete-a-tete comes two days before leaders of a newly-dubbed
“Mediterranean Front” gather in Malta to thrash out a Latin strategy and
plot ways to break the German lockhold on policy.
Apple Daily:
- Luk
Fook Same-Store Sales Fall More Than 30% in Golden Week. That compares
with 65% growth in same period last year, citing financial controller
Law Tim Fuk. Visitors this year reduced their purchases. Law expects
yearly growth of jewelry sector to slow to single digits in the future.
21st Century Business Herald:
- China
Big 4 Banks Sept. New Loans 166B Yuan. New loans were 50B yuan less
than in August, citing people familiar with the matter. Bank of China
and the Agricultural Bank of China new loans "declined significantly" on
the month.
Evening Recommendations
Piper Jaffray:
- Rated (GRA) Overweight, target $70.
- Rated (ECL) Overweight, target $76.
- Rated (FUL) Overweight, target 37.
Night Trading
- Asian equity indices are -1.25% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 134.0 unch.
- Asia Pacific Sovereign CDS Index 111.0 unch.
- FTSE-100 futures -.27%.
- S&P 500 futures +.01%.
- NASDAQ 100 futures +.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (FAST)/.37
- (SWY)/.43
- (JBHT)/.66
Economic Releases
8:30 am EST
- The Import Price Index for September is estimated to rise +.7% versus a +.7% gain in August.
- The Trade Deficit for August is estimated to widen to -$44.0B versus -$42.0B in July.
- Initial Jobless Claims are estimated to rise to 370K versus 367K the prior week.
- Continuing Claims are estimated to fall to 3275K versus 3281K prior.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Bullard speaking, Fed's Plosser speaking, Fed's Stein speaking,
Italy bond auction, eurozone inflation data, China new loan data, G7
Finance Ministers Meeting, USDA crop report, 30Y T-Bond auction, weekly
EIA energy inventory reports, weekly Bloomberg Consumer Comfort
Index, Bloomberg US Economic Survey for October, (IRM) investor day and
the (ACN) analyst conference could also impact trading today.
BOTTOM LINE: Asian
indices are lower, weighed down by technology and industrial 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.
