BETWEEN THE HEDGES

Monday, October 22, 2012

Monday Watch

Posted by Gary .....at 12:57 AM

Weekend Headlines
Bloomberg:

Worst Carry Trades Show Central Banks Reaching Stimulus Limits. The $4 trillion-a-day foreign- exchange market is losing confidence in central banks’ abilities to boost a struggling world economy. Rather than sparking bets on growth, the JPMorgan Chase & Co. G7 Volatility Index, which more than doubled in 2007 to 2008 before policy makers employed extraordinary measures to address faltering global expansion, has dropped to a five-year low. While small foreign-exchange swings historically favor the strategy of borrowing in low-yielding currencies to buy those with higher returns, a UBS AG index that tracks profits from the so-called carry trade has fallen to the lowest level since 2011.
Rajoy Wins Heartland Victory as Spaniards Lift Bailout Obstacle. Prime Minister Mariano Rajoy extended his majority in the stronghold region of Galicia as Spanish voters offered some respite to his 10-month-old government and removed one obstacle to a European bailout.
Greece Austerity Diet Risks 1930s-Style Depression: Euro Credit. Greece is spiraling into the kind of decline the US and Germany endured during the Great Depression. The economy shrunk 18.4% in the past four years and the IMF forecasts it will contract another 4% in 2013 as Greece struggles to reduce debt in exchange for its $300 billion rescue programs. That's the biggest cumulative loss of output of a developed-country economy in at least three decades, coming within spitting distance of the 27% drop in the U.S. economy between 1929 and 1933.
Asset-Backed Securities May Face Tougher Oversight in Basel Plan. Banks trading asset-backed securities may face tougher capital requirements and stricter oversight from global supervisors amid concerns that regulation is failing to curb excessive-risk taking. The Basel Committee on Banking Supervision is about to embark on a “fundamental” review of how securitization is regulated, Wayne Byres, the group’s secretary general, said in an interview last week.
China’s Stocks Drop Most in a Week on Earnings, Property Concern. China’s stocks fell, sending the benchmark index to the biggest loss in a week, on concern corporate earnings are worsening and local governments will take further steps to cool the property market. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. (600111), China’s biggest producer of rare earth, declined the most in a month after third-quarter profit slumped. Shaanxi Construction Machinery Co. plunged 7.4 percent and China Vanke Co. led losses for real-estate developers after the China Securities Journal said northwest Shaanxi province will prevent property companies from reaping profit margins of more than 10 percent. “Third-quarter earnings reports aren’t optimistic and corporate earnings are still finding a bottom,” said Wu Kan, a fund manager at Dazhong Insurance Co. in Shanghai, which oversees $285 million. “Given the current policy outlook, any relaxation on property prices is still far away.” The Shanghai Composite Index (SHCOMP) dropped 0.5 percent to 2,117.66 as of 9:46 a.m. local time, heading for the steepest loss since Oct. 11.
Rosneft, BP Said to Near $28 Billion Deal for TNK-BP Stake. OAO Rosneft (ROSN) has agreed to the terms of a deal to buy BP Plc (BP/)’s half of its TNK-BP Russian venture, releasing the U.K. company from a fractious nine-year alliance and bringing state-backed Rosneft closer to becoming the world’s biggest publicly traded oil producer, according to people familiar with the talks.
S. Korea Prepares to Evacuate DMZ Citizens After Threat. South Korea is preparing to evacuate more than 800 residents along the demilitarized zone after North Korea threatened to fire on activists planning to send balloons across the border carrying leaflets critical of its regime. While no orders to leave are currently in place, authorities have been preparing citizens residing within the civilian control line to evacuate if any signs of a possible attack emerge, Park Kwang Hae, an official at Paju City Council, said by telephone today.
Lebanon Clashes Erupt in ‘Day of Rage’ to Protest Bombing. Supporters of Lebanon’s opposition March 14 coalition clashed with police following the funeral of an assassinated security official as they held a “Day of Rage” protest against Syrian President Bashar al-Assad. Hundreds headed toward the Grand Serail, headquarters of Prime Minister Najib Mikati, whom the group has blamed for the Oct. 19 bombing that killed Brigadier General Wissam al-Hassan. They pelted police with stones, spurring security forces to fire into the air to disperse the crowd. Protesters turned violent after a top March 14 politician, former Prime Minister Fouad Siniora, demanded that Mikati step down. Mikati’s Cabinet is backed by the Shiite Muslim militant Hezbollah group, an Assad ally and the main bloc in the pro- Syria March 8 coalition. “Leave, Mr. Prime Minister, otherwise you’ll be accused of covering up for the criminals,” Siniora told the cheering crowds. “The Lebanese will no longer accept the continuation of the Cabinet of assassination."
Australia to Announce Cuts at Budget Review Tomorrow, Swan Says. The Australian government will announce “significant” cuts at a budget update tomorrow as it remains committed to restoring a surplus, according to Treasurer Wayne Swan. “The toughest conditions in the global economy in generations have cut a swathe through traditional sources of revenues,” Swan said today in his weekly economic note. “This will require more savings to be found. The savings will be significant.”
Poor in India Starve as Politicians Steal $14.5 Billion of Food. Ram Kishen, 52, half-blind and half- starved, holds in his gnarled hands the reason for his hunger: a tattered card entitling him to subsidized rations that now serves as a symbol of India’s biggest food heist.
Hedge Funds Cut Bets to 12-Week Low as Prices Drop: Commodities. Hedge funds cut bullish commodity bets to the lowest since July as speculation that governments in China and Europe aren’t doing enough to boost growth drove prices to the biggest loss in five weeks. Speculators reduced net-long positions across 18 U.S. futures and options by 4.4 percent to 1.18 million contracts in the week ended Oct. 16, the lowest since July 24, U.S. Commodity Futures Trading Commission data show. Gold bets slid 7 percent, the first decline since Aug. 14, and those in silver fell 5.8 percent, the first drop in 12 weeks.

Wall Street Journal:

Crash Puts New Focus on China Leaders. As a Chinese court prepares to expose the alleged crimes of former Communist Party highflier Bo Xilai, censors and security officials have been trying to bury a separate scandal that has emboldened critics of President Hu Jintao and could complicate efforts to restore the party's tarnished image. Just three days after Mr. Bo was fired as party chief of Chongqing in March, the 23-year-old son of President Hu's closest confidant crashed a black Ferrari at 4 a.m. on a snow-slickened Beijing ring road. Ling Gu died on the spot, according to party insiders, Chinese reporters and others whose accounts offer new insights into the hushed-up incident. Two ethnic Tibetan women squeezed into the vehicle were badly hurt, and one later died. All details of the crash, including the name of the driver, were quickly suppressed.
Chinese Investors Fear Chill in Canada.
Law Firms Face Fresh Backlash Over Fees.
Pennsylvania: Last-Minute Game-Changer? The State Hasn't Backed a GOP Presidential Candidate Since '88, but as Obama's Lead Narrows, Romney's Camp Eyes It.
Spanish Vote Delivers Mixed Verdict. Premier's Party Controls Home Region, Trails Basque Nationalists, in Test of Rajoy's Crisis Management.
Dorothy Rabinowitz: The Unreality of the Past Four Years. The Benghazi fiasco is a brutally illuminating portrait of the Obama White House in crisis mode.

Business Insider:

Zero Hedge:

CNBC:

Psst: This Tax About to Go Up for 163 Million People. President Barack Obama isn't talking about it and neither is Mitt Romney. But come January, 163 million workers can expect to feel the pinch of a big tax increase regardless of who wins the election.
Kudlow: White House Benghazi Blunder Grows Even Worse. With each passing day it seems the White House response to the Libya attacks grows all the more baffling. Larry Kudlow smells a rat.

Reuters:

Jordan foils al Qaeda plot, arrests 11 militants: state TV. Jordan has foiled a plot by an al Qaeda-linked cell to bomb its shopping centres and assassinate Western diplomats, state television said on Sunday, thwarting an attempt to destabilize the key U.S. ally. Security forces had detained 11 suspects, all Jordanians, in connection with the plot, which envisaged carrying out attacks in the capital Amman using smuggled weapons and explosives from Syria, according to security officials cited by television. The plot had been active since June. Minister of Information Samih al Maaytah said the arrests underscored the serious threat posed by radical "terror groups" seeking to undermine the kingdom's long tradition of stability. A key U.S. ally in the Middle East and Israel's peace partner, Jordan enjoys close ties with Western intelligence agencies and has often been targeted by al-Qaeda and other Islamist militants. The cell had targeted two major shopping malls in the capital and was planning a bombing campaign in the capital's affluent Abdoun neighborhood, where many foreign embassies are located. A security source said the suspects had manufactured explosives "aimed at inflicting the heaviest losses possible".
Japan exports tumble -10.3%, China row hits manufacturing mood. Japan's exports tumbled at their sharpest pace since the aftermath of last year's earthquake in the year to September, while manufacturers' mood hit its lowest since early 2010, data published on Monday showed, a sign the diplomatic row with China is further hurting the export-reliant economy. The latest data reinforce concerns that Japan, the world's third largest economy, may slide back into recession as sales to China and Europe sag amid the global slowdown and demand at home led by rebuilding from last year's earthquake and tsunami disaster loses momentum. They weak figures pile pressure on the Bank of Japan to stimulate the economy, and it will likely cut its economic forecasts and ponder further easing monetary policy at its Oct. 30 meeting, according to sources familiar with its thinking. Exports fell 10.3 percent in the year to September, against a 9.6 percent drop expected by economists, down for four months in a row, as shipments of cars, ships and electronics slumped, Ministry of Finance data showed on Monday.

Financial Times:

Fears rise of mortgage ‘ticking time bomb'. Claims management companies that feed off compensation payments made by banks are shifting their attention to interest-only mortgages as fears grow that tougher regulation could open the doors to a future mis-selling scandal. Lenders are increasingly concerned that a looming clampdown on these mortgages, which do not require borrowers to pay off the capital each month, will put the onus on them to ensure customers can afford to repay the loans at the end of the term.
Merkel to warn UK on Europe budget veto. Germany is planning to warn Britain that it will seek to cancel next month’s European budget summit if David Cameron, the prime minister, insists that he will veto any deal other than a total freeze on spending. Angela Merkel, Germany’s chancellor, does not believe there is any point in holding the budget summit to agree on a seven-year framework for EU spending if Britain intends to veto any deal, say people close to the negotiations.
Democrats Threaten Payroll Tax Cut Consensus. Some Democrats in Congress are seeking to include an extension of the $120bn payroll tax cut in negotiations over the looming “fiscal cliff”, shaking what had appeared to be a bipartisan consensus to allow the measure to expire as planned at the end of the year. The move could complicate the budget talks due to begin after the November presidential election and alarm rating agencies – since the sunset of the payroll tax measure is the only big provision that both parties seem comfortable directing towards deficit reduction.

Telegraph:

IMF's epic plan to conjure away debt and dethrone bankers. So there is a magic wand after all. A revolutionary paper by the International Monetary Fund claims that one could eliminate the net public debt of the US at a stroke, and by implication do the same for Britain, Germany, Italy, or Japan. "If you enacted this plan, it would devastate bank profits and cause a massive deflationary disaster. There would have to do `QE squared' to offset it," he said. The result would be a huge shift in bank balance sheets from private lending to government securities. This happened during World War Two, but that was the anomalous cost of defeating Fascism. To do this on a permanent basis in peace-time would be to change in the nature of western capitalism. "People wouldn't be able to get money from banks. There would be huge damage to the efficiency of the economy," he said. Arguably, it would smother freedom and enthrone a Leviathan state. It might be even more irksome in the long run than rule by bankers. Personally, I am a long way from reaching an conclusion in this extraordinary debate. Let it run, and let us all fight until we flush out the arguments. One thing is sure. The City of London will have great trouble earning its keep if any variant of the Chicago Plan ever gains wide support.

WirtschaftsWoche:

IFO president Hans-Werner Sinn says Germany will end opposition to eurobonds sooner or later. Sinn said "political actionism" won't stop with the ESM as the money won't be enough despite the leveraging.

Welt am Sonntag:

The European Central Bank rejects concrete yield targets for Spain, citing central bank officials. Spain would like the ECB to push yields on 10-year bonds below current levels while the ECB sees role in preventing tensions like in July this year when yields rose >7%. Different opinion may be reason for Spain reluctance to apply for the ESM.

Parapolitika:

Greece's main opposition Syriza party, which as vowed to cancel the terms of the country's two international bailouts, would come in first if general elections were held now, a poll by Rass shows. Syriza would get 23.8% of the vote. Prime Minister Antonis Samaras's New Democracy party 22.7% and the Nationalist Golden Dawn party third with 9.2%% of the vote. 87.7% say the government should adopt tougher stance in talks with the troika.

Kyodo:

Tokyo's metropolitan police department, Kanagawa prefectural Police and Osaka prefectural police will help monitor the water around Senkaky islands and prevent illegal landing by Chinese activists.

China State Oceanic Administration:

Chinese marine patrol ships returned to waters near a group of disputed islands after earlier departing to avoid a typhoon. The ships are continuing to carry out patrols in the area.

The Peninsula:

Wave of attacks by Boko Haram kills 23 in Nigeria. A wave of attacks by suspected Boko Haram Islamists in northeastern Nigeria has killed at least 23 people and destroyed several buildings, a hospital official and residents said yesterday. A nurse at the Potiskum general hospital spoke of 20 bodies being brought to the morgue, while residents said three bodies were buried by their families following explosions and shootings in the restive city on Thursday. “We now have a total of 20 bodies brought in yesterday from the attacks of the previous night. Initially, 11 bodies were brought and nine more were received later,” a nurse who asked not to be named said. “Most of them have gunshot wounds but some had their throat slit. The bodies included that of a police sergeant and a prison warder,” he said. Residents said the toll could be higher as some relations had taken some bodies from the streets for burial.

Weekend Recommendations

Barron's:

Made positive comments on (AAPL), (GOOG), (TXI), (BBT), (NOV) and (EMC).
Made negative comments on (BNNY).

Night Trading

Asian indices are -.50% to -.25% on average.
Asia Ex-Japan Investment Grade CDS Index 117.0 +1.5 basis points.
Asia Pacific Sovereign CDS Index 93.75 +1.0 basis point.
FTSE-100 futures -.31%.
S&P 500 futures +.25%.
NASDAQ 100 futures +.42%.

Morning Preview Links

Earnings of Note
Company/Estimate

(BTU)/.34
(STI)/2.02
(HAS)/1.20
(VFC)/3.49
(CAT)/2.22
(FCX)/.73
(TXN)/.40
(HMA)/.20
(YHOO)/.25
(VECO)/.31
(WDC)/2.30
(WYNN)/1.34

Economic Releases

None of note

Upcoming Splits

None of note

Other Potential Market Movers

The Fed's Pianalto speaking and the German Finance Ministry Monthly Report could also impact trading today.

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

Sunday, October 21, 2012

Weekly Outlook

Posted by Gary .....at 8:25 PM

U.S. Week Ahead by Reuters (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, Eurozone debt angst, rising US "fiscal cliff" concerns, Mid-east unrest, rising US election uncertainty, high food/energy prices, more shorting, technical selling and earnings worries. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.

Friday, October 19, 2012

Market Week in Review

Posted by Gary .....at 9:14 PM

S&P 500 1,433.19 +.32%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Posted by Gary .....at 9:09 PM

Indices

S&P 500 1,433.19 +.32%
DJIA 13,343.51 +.11%
NASDAQ 3,005.62 -1.26%
Russell 2000 821.0 -.25%
Value Line Geometric(broad market) 356.98 +.41%
Russell 1000 Growth 657.68 -.57%
Russell 1000 Value 717.86 +1.33%
Morgan Stanley Consumer 843.15 +.37%
Morgan Stanley Cyclical 993.28 +2.46%
Morgan Stanley Technology 654.88 -1.02%
Transports 5,082.16 +.74%
Utilities 483.76 +1.74%
Bloomberg European Bank/Financial Services 85.32 +2.81%
MSCI Emerging Markets 41.73 +1.04%
Lyxor L/S Equity Long Bias 1,059.85 +.62%
Lyxor L/S Equity Variable Bias 801.22 +.33%

Sentiment/Internals

NYSE Cumulative A/D Line 158,839 +1.23%
Bloomberg New Highs-Lows Index 264 +265
Bloomberg Crude Oil % Bulls 21.2 -17.50%
CFTC Oil Net Speculative Position 206,472 -3.34%
CFTC Oil Total Open Interest 1,580,619 +2.45%
Total Put/Call 1.12 +8.74%
OEX Put/Call 1.24 +30.53%
ISE Sentiment 89.0 +2.30%
NYSE Arms 2.50 +43.67%
Volatility(VIX) 17.06 +5.70%
S&P 500 Implied Correlation 49.31 +.10%
G7 Currency Volatility (VXY) 7.58 +1.07%
Smart Money Flow Index 11,482.26 +.50%
Money Mkt Mutual Fund Assets $2.568 Trillion +.20%
AAII % Bulls 28.7 -6.28%
AAII % Bears 44.6 +14.7%

Futures Spot Prices

CRB Index 306.05 -.16%
Crude Oil 90.05 -1.73%
Reformulated Gasoline 269.63 -6.83%
Natural Gas 3.62 +.56%
Heating Oil 313.45 -2.65%
Gold 1,724.0 -1.79%
Bloomberg Base Metals Index 210.30 -.71%
Copper 363.75 -1.66%
US No. 1 Heavy Melt Scrap Steel 347.67 USD/Ton unch.
China Iron Ore Spot 115.30 USD/Ton +.70%
Lumber 310.80 +4.82%
UBS-Bloomberg Agriculture 1,666.79 +1.10%

Economy

ECRI Weekly Leading Economic Index Growth Rate +6.1% +40 basis points
Philly Fed ADS Real-Time Business Conditions Index -.1659 +5.90%
S&P 500 Blended Forward 12 Months Mean EPS Estimate 112.25 -.03%
Citi US Economic Surprise Index 53.2 +3.8 points
Fed Fund Futures imply 58.0% chance of no change, 42.0% chance of 25 basis point cut on 10/24
US Dollar Index 79.62 -.07%
Yield Curve 147.0 +8 basis points
10-Year US Treasury Yield 1.76% +10 basis points
Federal Reserve's Balance Sheet $2.829 Trillion +1.28%
U.S. Sovereign Debt Credit Default Swap 31.75 -15.56%
Illinois Municipal Debt Credit Default Swap 191.0 -2.88%
Western Europe Sovereign Debt Credit Default Swap Index 105.53 -22.57%
Emerging Markets Sovereign Debt CDS Index 177.92 -9.68%
Saudi Sovereign Debt Credit Default Swap 83.56 -1.87%
Iraq Sovereign Debt Credit Default Swap 453.98 +3.77%
China Blended Corporate Spread Index 376.0 -20 basis points
10-Year TIPS Spread 2.50% +3 basis points
TED Spread 22.5 -1.25 basis points
2-Year Swap Spread 10.75 -.5 basis point
3-Month EUR/USD Cross-Currency Basis Swap -25.25 -.25 basis point
N. America Investment Grade Credit Default Swap Index 92.77 -4.04%
European Financial Sector Credit Default Swap Index 162.50 -8.87%
Emerging Markets Credit Default Swap Index 213.06 -3.52%
CMBS Super Senior AAA 10-Year Treasury Spread 90.0 -7 basis points
M1 Money Supply $2.401 Trillion +1.81%
Commercial Paper Outstanding 943.60 -2.20%
4-Week Moving Average of Jobless Claims 365,500 +1,500
Continuing Claims Unemployment Rate 2.5% -10 basis points
Average 30-Year Mortgage Rate 3.37% -2 basis points
Weekly Mortgage Applications 964.0 -4.19%
Bloomberg Consumer Comfort -34.8 +3.7 points
Weekly Retail Sales +1.70% +10.0 basis points
Nationwide Gas $3.71/gallon -.10/gallon
U.S. Heating Demand Next 7 Days 44.0% below normal
Baltic Dry Index 1,010 +9.07%
China (Export) Containerized Freight Index 1,177.71 -.84%
Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 22.50 unch.
Rail Freight Carloads 250,826 -.11%

Best Performing Style

Large-Cap Value +1.33%

Worst Performing Style

Small-Cap Growth -.65%

Leading Sectors

Homebuilders +7.29%
Drugs +2.29%
Insurance +2.22%
Defense +2.05%
Energy +1.82%

Lagging Sectors

Internet -2.98%
Restaurants -3.34%
Oil Tankers -5.03%
Computer Services -5.61%
Education -17.12%

Weekly High-Volume Stock Gainers (10)

CYMI, ETH, AEGR, BMI, WCC, ISRG, PNFP, WLK, EWBC and PJC

Weekly High-Volume Stock Losers (9)

LH, DGX, GOV, DBD, TZOO, FTNT, ALGN, RATE and APOL

Weekly Charts
ETFs

Stocks

*5-Day Change

Stocks Falling Sharply into Final Hour on Rising Global Growth Fears, US Fiscal Cliff Worries, Rising Eurozone Debt Angst, Earnings Concerns

Posted by Gary .....at 4:02 PM

Today's Market Take:

Broad Market Tone:

Advance/Decline Line: Substantially Lower
Sector Performance: Almost Every Sector Declining
Volume: Slightly Above Average
Market Leading Stocks: Underperforming

Equity Investor Angst:

VIX 17.08 +13.64%
ISE Sentiment Index 98.0 -19.67%
Total Put/Call 1.15 +35.29%
NYSE Arms 2.54 +237.60%

Credit Investor Angst:

North American Investment Grade CDS Index 93.44 bps +2.81%
European Financial Sector CDS Index 162.42 bps +2.58%
Western Europe Sovereign Debt CDS Index 105.75 bps -1.19%
Emerging Market CDS Index 213.81 bps +1.88%
2-Year Swap Spread 10.75 +1.0 basis point
TED Spread 22.5 +.25 basis point
3-Month EUR/USD Cross-Currency Basis Swap -25.25 unch.

Economic Gauges:

3-Month T-Bill Yield .09% -1 basis point
Yield Curve 148.0 -5 basis points
China Import Iron Ore Spot $115.30/Metric Tonne -.17%
Citi US Economic Surprise Index 53.20 -.7 point
10-Year TIPS Spread 2.51 -1 basis point

Overseas Futures:

Nikkei Futures: Indicating -130 open in Japan
DAX Futures: Indicating -35 open in Germany

Portfolio:

Slightly Higher: On gains in my index hedges and emerging markets shorts
Disclosed Trades: None
Market Exposure: 25% Net Long

Today's Headlines

Posted by Gary .....at 3:34 PM

Bloomberg:

Spanish Notes Drop as Rajoy Says Under No Pressure to Seek Aid. Spanish government notes fell, with two-year yields rising from the lowest in more than six months, after Prime Minister Mariano Rajoy said he was not facing pressure to seek a sovereign bailout.The two-year securities dropped for the first time in four days as Rajoy’s comments at a European Union summit in Brussels fueled concern a delay in asking for aid will prolong the nation’s debt crisis. German bunds advanced, pushing the yield down from near the highest in a month. Italian bonds completed a third weekly gain after the Treasury said yesterday it received orders for more than 18 billion euros ($23.6 billion) of retail securities it was selling to investors. “The market is still very sensitive regarding the bailout request” from Spain, said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “Our view is that the market will have to wait to get clarity.”
EU Leaders Agree On Bank Oversight Amid Merkel Questions. German Chancellor Angela Merkel said it’s an open question whether European policy makers can meet the deadline they’d set hours earlier to establish a euro-area bank supervisor by year-end. “There are complicated questions to clarify and we’ll see in December if we complete it or not,” Merkel told reporters after a two-day European Union summit in Brussels wrapped up today. “For now, the political will is there.” The comments underscore Germany’s go-slow approach that may stymie plans laid down in June to break the link between banks and governments that has worsened the region’s debt crisis. She also ruled out allowing Spain to shift bank-bailout loans off its balance sheet if they are made before the new system starts operating.
European Stocks Fall as EU Leaders Fail to Discuss Spain. Bankia SA led lenders lower, losing 14 percent as a gauge of banks contributed most to the Stoxx Europe 600 Index’s drop. Aggreko Plc (AGK) fell 7.2 percent after it said bad-debt provisions would hurt full-year results. Spectris Plc (SXS) surged 12 percent after it reported a 12 percent increase in sales last quarter and said it will meet its full-year targets. Carrefour SA (CA) advanced 5.9 percent after it agreed to sell its Colombian unit. The Stoxx 600 fell 0.8 percent to 274.08 at the close of trading. French President Francois Hollande said additional assistance for Spain wasn’t discussed at the summit of European leaders in Brussels.
Greece Nears Aid Revival as Samaras Wins EU Summit Praise. Greek Prime Minister Antonis Samaras moved closer to winning a delayed aid disbursement when European leaders praised his government’s budget-cutting push. At his first European Union summit since becoming premier in June, Samaras said record unemployment showed the price Greece was paying for austerity demanded by the euro area as a condition for emergency loans. He urged parallel steps to kick- start the economy and stuck to a request for two extra years until 2016 to meet targets for narrowing the budget deficit, prompting signs of European goodwill.
China Might Have Overstated Growth in Standard Chartered View. A slowdown in electricity production and an “unimpressive” reading in a manufacturing survey are reasons September’s pickup in factory output was “a bit difficult to believe,” Standard Chartered said in an Oct. 18 note. Electricity output slowed to a 1.5 percent year-over-year growth rate in September from 2.7 percent in August, according to the National Bureau of Statistics. Power production was down 11 percent from August.
Wealthy Advised to Sell for Gains Before Unfriendly 2013. Sell. That’s the message from some financial advisers, who are telling wealthy clients that the remainder of 2012 amounts to a last-chance sale on federal tax rates. Taxes are set to rise in January in the U.S., pushing the top rate on dividends to 43.4 percent from 15 percent and the top rate on capital gains to 23.8 percent from 15 percent. Even if Congress averts the so-called fiscal cliff of tax increases on investments, income and estates, pressure to reduce budget deficits will mean higher taxes eventually, said Ron Florance of Wells Fargo & Co. (WFC) The answer is to take advantage of historically low rates and move taxable income and investment gains into this year, said Florance, managing director of investment strategy at the company’s private bank. “It’s the opposite of what people normally do,” said Florance, whose clients usually have at least $1 million in investable assets. “You’re paying taxes today in anticipation of higher rates in the future.”
Swaps Rule Sends Wall Street Into Clearing Limbo: Credit Markets. The securities industry misinterpreted rules it assumed allowed as many as nine months to start moving swaps into clearinghouses that are meant to limit risks to the financial system. Firms dealing in $648 trillion of outstanding swaps contracts expected that trading during a phase-in period wouldn’t need to be processed by central clearinghouses, according to an Oct. 5 e-mail sent to clients by Davis Polk & Wardwell LLP, which represents the Securities Industry and Financial Markets Association. They were wrong, misreading one sentence in 17,000 words of regulation. Unless lobbyists convince the Commodity Futures Trading Commission to soften the deadlines, derivatives users that speculate on or hedge against losses on everything from changes in interest rates to corporate bankruptcies may need to find cash and Treasuries to back the trades sooner than they anticipated.
McDonald’s(MCD) Profit Falls 3.5% as U.S. Growth Slows. McDonald’s Corp. (MCD), the world’s largest restaurant chain by sales, reported third-quarter profit fell 3.5 percent as sales growth slowed at U.S. stores. Net income (MCD) dropped to $1.46 billion, or $1.43 a share, from $1.51 billion, or $1.45, a year earlier, the Oak Brook, Illinois-based company said today in a statement. Foreign- currency exchange-rate fluctuations reduced net income by 8 cents a share in the third quarter. Analysts projected $1.47, the average of 26 estimates compiled by Bloomberg. Chief Executive Officer Don Thompson, who took the helm in July, has tried to draw budget-conscious Americans with a new extra-value menu. Sales at U.S. stores open at least 13 months rose 1.2 percent in the quarter, marking the slowest growth in 11 quarters. Analysts projected an increase of 1.7 percent, according to 21 estimates compiled by Consensus Metrix.
Republicans Press Obama on Libya Security Before Debate. Top Republicans on a House oversight panel demanded that President Barack Obama say whether the White House staff played any role in decisions on security at the U.S. consulate in Benghazi, Libya, raising new questions days before a presidential debate on foreign policy. “Your administration has not been straightforward with the American people in the aftermath of the attack” on Sept. 11 that killed U.S. Ambassador to Libya Chris Stevens and three other Americans, House Oversight and Government Reform Committee Chairman Darrell Issa and Representative Jason Chaffetz, who heads a subcommittee, said today in a letter to Obama. In addition to repeating criticism of the administration’s changing accounts of the attack, the Republicans said the panel found requests from personnel in Libya for increased security beforehand had been turned down because the administration was eager for a “normalization” of relations with that country after the rebellion that ousted ruler Muammar Qaddafi. “These critical foreign policy decisions are not made by low or mid-level career officials –- they are typically made through a structured and well-reasoned process that includes the National Security Council at the White House,” wrote Issa of California and Chaffetz of Utah.
Honeywell(HON) CFO Says China Growth May Slow to 23-Year Low. Honeywell International Inc., the maker of cockpit controls and thermostats, is forecasting 2013 economic growth in China may decelerate to less than 7 percent, the slowest pace since 1990. The euro area will remain in recession next year and U.S. growth will likely be 1.8 percent, said Dave Anderson, chief financial officer of the Morris Township, New Jersey-based manufacturer. The company plans to cut costs and introduce new products to keep earnings growth in 2013 at a similar level as this year, he said. “It wouldn’t be surprising to us if China didn’t break 7 percent GDP growth in 2013,” Anderson said in a telephone interview. “Our expectation is that there’s going to be relatively muted growth overall in 2013.”

Wall Street Journal:

Tech Stocks Spark Dow Fall. Technology and materials shares paced a broad stock-market decline, as the tech-oriented Nasdaq Composite traded at its lowest level since August. The Dow Jones Industrial Average fell 195 points, or 1.4%, to 13354, in Friday afternoon trading. The index's stumble comes on the 25th anniversary of Black Monday, when the Dow tumbled more than 20% in a single day. The Standard & Poor's 500-stock index lost 23 points, or 1.6%, to 1432, and the Nasdaq gave up 65 points, or 2.2%, to 3008.
Germany Takes Hard Line on Spanish Banks. German Chancellor Angela Merkel took a hard line on Spain Friday, saying that Madrid will have to keep on its own balance sheet the tens of billions of dollars it is about to inject into its banks and won't be able to transfer them to the euro-zone bailout fund. That position, laid out after a two-day summit of European Union leaders in Brussels, would mean that Spanish borrowing from the euro zone to bolster the capital of shaky banks—estimated to be as much as €60 billion ($78.72 billion)—will swell the country's already-heavy debt load.
Failed U.S. Deals Stir Tensions With China.
Spain's Largest Unions Call Nationwide Strike. Spain's largest unions Friday called a nationwide strike, warning Prime Minister Mariano Rajoy of their opposition to his austerity policies as he negotiates the terms of an international financial bailout. The strike announced by the General Workers Union and the Labor Federation will take place on Nov. 14, in tandem with planned general strikes in Greece and Portugal. Heavy budget cuts and high jobless rates have increased social tensions during the persistent debt crisis across peripheral euro zone nations.

MarketWatch.com:

Sales of existing homes drop in September.