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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Analytic systems share system limits with financial markets.

Correspondent Lew G. recently sent me a thought-provoking commentary on the limits of "total information awareness" in terms of any information system's intrinsic rate of generating false positives.

In essence, the rate of false positives limits the effectiveness of any predictive system. The process of attempting to eliminate false positives is inherently one of diminishing return: even with no expense spared, the effort to eliminate false positives runs into boundaries of signal noise and generation of false positives.

To the degree that financial markets are ultimately predictive systems, this suggests a systemic cause of "unexpected" market crashes: signal noise and the intrinsic generation of false positives lead to a false sense of confidence in the system's stability and its ability to predict continued stability.

Here are Lew's comments: 

Resources to deal with reality are inherently limited by that reality.

Information, to the contrary, is inherently infinite, because of the fractal nature of reality.

 

A property of that information reality is that 'meaning' is relative to other items of info, and that any single item can change the interpretation of a big set of facts. E.g., "Muslim, bought pipes, bought gun powder, visits jihadi sites, attends the Mosque weekly, tithes …" can be completely changed in meaning by a fact such as 'belongs to the Libertarian Party', even 'is a plumber, 'is a target shooting enthusiast'".

 

This will continue to be true no matter how much info the NSA gathers: it will be a small subset of the information needed to answer the question 'possible terrorist?'.

 

Thus NSA's tradeoff of privacy vs security is inconsistent with reality: no matter how much info they gather, no matter how sophisticated their filters, they can never detect terrorists without a false positive rate so high that there will be insufficient resources to follow up on them.

In other words, if the system's lower boundary is one false positive per million, no additional amount of information gathering or predictive analysis will lower that rate of false positive generation to zero.

Why does this matter? It matters because it reveals that large-scale analytic systems are limited by their very nature. It isn't a matter of a lack of political will or funding; there are limits to the practical effectiveness of information gathering and predictive analysis.

Though Lew applied this to the NSA's "total information awareness" program, couldn't it also be applied to other large-scale information gathering and analysis projects such as analyzing financial markets?

This was the conclusion drawn by the father of fractals, Benoit Mandelbrot, in his book The (Mis)Behavior of Markets. As Mandelbrot observed: "When the weather changes, nobody believes the laws of physics have changed. Similarly, I don't believe that when the stock market goes into terrible gyrations its rules have changed."

All this should arouse a sense of humility about our ability to predict events, risks and crashes of one kind or another. In other words, risk cannot be entirely eliminated. Beyond a certain point, we're sacrificing treasure, civil liberties and energy for not just zero gain but negative return, as the treasure squandered on the quixotic quest for zero risk carries a steep opportunity cost: what else could we have accomplished with that treasure, effort and energy?

This entry was drawn from the Musings Reports, which are sent weekly to subscribers and major contributors.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BqrLr9ZtK9U/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Analytic systems share system limits with financial markets.

Correspondent Lew G. recently sent me a thought-provoking commentary on the limits of "total information awareness" in terms of any information system's intrinsic rate of generating false positives.

In essence, the rate of false positives limits the effectiveness of any predictive system. The process of attempting to eliminate false positives is inherently one of diminishing return: even with no expense spared, the effort to eliminate false positives runs into boundaries of signal noise and generation of false positives.

To the degree that financial markets are ultimately predictive systems, this suggests a systemic cause of "unexpected" market crashes: signal noise and the intrinsic generation of false positives lead to a false sense of confidence in the system's stability and its ability to predict continued stability.

Here are Lew's comments: 

Resources to deal with reality are inherently limited by that reality.

Information, to the contrary, is inherently infinite, because of the fractal nature of reality.

 

A property of that information reality is that 'meaning' is relative to other items of info, and that any single item can change the interpretation of a big set of facts. E.g., "Muslim, bought pipes, bought gun powder, visits jihadi sites, attends the Mosque weekly, tithes …" can be completely changed in meaning by a fact such as 'belongs to the Libertarian Party', even 'is a plumber, 'is a target shooting enthusiast'".

 

This will continue to be true no matter how much info the NSA gathers: it will be a small subset of the information needed to answer the question 'possible terrorist?'.

 

Thus NSA's tradeoff of privacy vs security is inconsistent with reality: no matter how much info they gather, no matter how sophisticated their filters, they can never detect terrorists without a false positive rate so high that there will be insufficient resources to follow up on them.

In other words, if the system's lower boundary is one false positive per million, no additional amount of information gathering or predictive analysis will lower that rate of false positive generation to zero.

Why does this matter? It matters because it reveals that large-scale analytic systems are limited by their very nature. It isn't a matter of a lack of political will or funding; there are limits to the practical effectiveness of information gathering and predictive analysis.

Though Lew applied this to the NSA's "total information awareness" program, couldn't it also be applied to other large-scale information gathering and analysis projects such as analyzing financial markets?

This was the conclusion drawn by the father of fractals, Benoit Mandelbrot, in his book The (Mis)Behavior of Markets. As Mandelbrot observed: "When the weather changes, nobody believes the laws of physics have changed. Similarly, I don't believe that when the stock market goes into terrible gyrations its rules have changed."

All this should arouse a sense of humility about our ability to predict events, risks and crashes of one kind or another. In other words, risk cannot be entirely eliminated. Beyond a certain point, we're sacrificing treasure, civil liberties and energy for not just zero gain but negative return, as the treasure squandered on the quixotic quest for zero risk carries a steep opportunity cost: what else could we have accomplished with that treasure, effort and energy?

This entry was drawn from the Musings Reports, which are sent weekly to subscribers and major contributors.

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Analytic systems share system limits with financial markets.

Correspondent Lew G. recently sent me a thought-provoking commentary on the limits of "total information awareness" in terms of any information system's intrinsic rate of generating false positives.

In essence, the rate of false positives limits the effectiveness of any predictive system. The process of attempting to eliminate false positives is inherently one of diminishing return: even with no expense spared, the effort to eliminate false positives runs into boundaries of signal noise and generation of false positives.

To the degree that financial markets are ultimately predictive systems, this suggests a systemic cause of "unexpected" market crashes: signal noise and the intrinsic generation of false positives lead to a false sense of confidence in the system's stability and its ability to predict continued stability.

Here are Lew's comments: 

Resources to deal with reality are inherently limited by that reality.

Information, to the contrary, is inherently infinite, because of the fractal nature of reality.

 

A property of that information reality is that 'meaning' is relative to other items of info, and that any single item can change the interpretation of a big set of facts. E.g., "Muslim, bought pipes, bought gun powder, visits jihadi sites, attends the Mosque weekly, tithes …" can be completely changed in meaning by a fact such as 'belongs to the Libertarian Party', even 'is a plumber, 'is a target shooting enthusiast'".

 

This will continue to be true no matter how much info the NSA gathers: it will be a small subset of the information needed to answer the question 'possible terrorist?'.

 

Thus NSA's tradeoff of privacy vs security is inconsistent with reality: no matter how much info they gather, no matter how sophisticated their filters, they can never detect terrorists without a false positive rate so high that there will be insufficient resources to follow up on them.

In other words, if the system's lower boundary is one false positive per million, no additional amount of information gathering or predictive analysis will lower that rate of false positive generation to zero.

Why does this matter? It matters because it reveals that large-scale analytic systems are limited by their very nature. It isn't a matter of a lack of political will or funding; there are limits to the practical effectiveness of information gathering and predictive analysis.

Though Lew applied this to the NSA's "total information awareness" program, couldn't it also be applied to other large-scale information gathering and analysis projects such as analyzing financial markets?

This was the conclusion drawn by the father of fractals, Benoit Mandelbrot, in his book The (Mis)Behavior of Markets. As Mandelbrot observed: "When the weather changes, nobody believes the laws of physics have changed. Similarly, I don't believe that when the stock market goes into terrible gyrations its rules have changed."

All this should arouse a sense of humility about our ability to predict events, risks and crashes of one kind or another. In other words, risk cannot be entirely eliminated. Beyond a certain point, we're sacrificing treasure, civil liberties and energy for not just zero gain but negative return, as the treasure squandered on the quixotic quest for zero risk carries a steep opportunity cost: what else could we have accomplished with that treasure, effort and energy?

This entry was drawn from the Musings Reports, which are sent weekly to subscribers and major contributors.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BqrLr9ZtK9U/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Analytic systems share system limits with financial markets.

Correspondent Lew G. recently sent me a thought-provoking commentary on the limits of "total information awareness" in terms of any information system's intrinsic rate of generating false positives.

In essence, the rate of false positives limits the effectiveness of any predictive system. The process of attempting to eliminate false positives is inherently one of diminishing return: even with no expense spared, the effort to eliminate false positives runs into boundaries of signal noise and generation of false positives.

To the degree that financial markets are ultimately predictive systems, this suggests a systemic cause of "unexpected" market crashes: signal noise and the intrinsic generation of false positives lead to a false sense of confidence in the system's stability and its ability to predict continued stability.

Here are Lew's comments: 

Resources to deal with reality are inherently limited by that reality.

Information, to the contrary, is inherently infinite, because of the fractal nature of reality.

 

A property of that information reality is that 'meaning' is relative to other items of info, and that any single item can change the interpretation of a big set of facts. E.g., "Muslim, bought pipes, bought gun powder, visits jihadi sites, attends the Mosque weekly, tithes …" can be completely changed in meaning by a fact such as 'belongs to the Libertarian Party', even 'is a plumber, 'is a target shooting enthusiast'".

 

This will continue to be true no matter how much info the NSA gathers: it will be a small subset of the information needed to answer the question 'possible terrorist?'.

 

Thus NSA's tradeoff of privacy vs security is inconsistent with reality: no matter how much info they gather, no matter how sophisticated their filters, they can never detect terrorists without a false positive rate so high that there will be insufficient resources to follow up on them.

In other words, if the system's lower boundary is one false positive per million, no additional amount of information gathering or predictive analysis will lower that rate of false positive generation to zero.

Why does this matter? It matters because it reveals that large-scale analytic systems are limited by their very nature. It isn't a matter of a lack of political will or funding; there are limits to the practical effectiveness of information gathering and predictive analysis.

Though Lew applied this to the NSA's "total information awareness" program, couldn't it also be applied to other large-scale information gathering and analysis projects such as analyzing financial markets?

This was the conclusion drawn by the father of fractals, Benoit Mandelbrot, in his book The (Mis)Behavior of Markets. As Mandelbrot observed: "When the weather changes, nobody believes the laws of physics have changed. Similarly, I don't believe that when the stock market goes into terrible gyrations its rules have changed."

All this should arouse a sense of humility about our ability to predict events, risks and crashes of one kind or another. In other words, risk cannot be entirely eliminated. Beyond a certain point, we're sacrificing treasure, civil liberties and energy for not just zero gain but negative return, as the treasure squandered on the quixotic quest for zero risk carries a steep opportunity cost: what else could we have accomplished with that treasure, effort and energy?

This entry was drawn from the Musings Reports, which are sent weekly to subscribers and major contributors.

In what is a staggering example of not only state meddling in the affairs of the “free press”, but worse, sheer state idiocy, yesterday the WSJ posted an article on its website revealing that as many as 24 co-conspirators would be exposed shortly in the ongoing Libor manipulation scandal and divulging the names of various individuals on this list. What promptly followed was truly bizarre. As the WSJ reports shortly after posting the article, “a British judge ordered the Journal and David Enrich, the newspaper’s European banking editor, to comply with a request by the U.K.’s Serious Fraud Office prohibiting the newspaper from publishing names of individuals not yet made public in the government’s ongoing investigation into alleged manipulation of the London interbank offered rate, or Libor.” This happened at 7:18 pm London time, after the original WSJ article had already hit the Internet.

The WSJ added that “The order, which applies to publication in England and Wales, also demanded that the Journal remove “any existing Internet publication” divulging the details. It threatened Mr. Enrich and “any third party” with penalties including a fine, imprisonment and asset seizure.”

As a result, the media organization decided to comply with this gross example state censorship, and now in the place of the article, one could find the following note:

… but not before protesting vocally.

The article said the government was preparing to name roughly two dozen traders and brokers, adding that prosecutors were still finalizing their plans and that the list could change, citing people familiar with the process. Inclusion on the list doesn’t represent a formal accusation of wrongdoing and doesn’t mean the individuals will be charged with crimes.

 

“This injunction is a serious affront to press freedom,” said Dow Jones & Co., publisher of the Journal. “We have been left with no choice but to remove the previously published story from WSJ.com and to withhold publication from the print edition of The Wall Street Journal Europe. However, we will continue to vigorously fight the injunction in the coming days.”

Yet it is not the censorship that is most shocking here, but the way the UK’s SFO went about scrubbing the trail. Because while the European version of the newspaper may have retracted the article from today’s print edition, the piece was still in the US version. Furthermore, since the original WSJ article hit the net before it was pulled, it was promptly picked up and reforwarded by either robotic or manned resyndicators of the WSJ. One such example was ValueWalk which took down the salient details that the SFO is so concerned about:

Among those who could be name are several of Hayes’ former coworkers at both Citigroup Inc and UBS AG. Michael Pieri, who was Hayes’ boss while he worked at UBS, was fired by the bank and moved to Australia. Hayes’ former assistant at UBS, Mirhat Alykulov, could also be on the list. Sources said he has been cooperating with investigators from the U.S.

 

Another name which could be on the SFO’s list is Christopher Cecere, who was Hayes’ boss while he worked in Citigroup’s Tokyo operations. Cecere resigned from his position at Citigroup around the same time Hayes was fired. Other people who could be on the list are ex HSBC Holdings plc trader Luke Madden, former JPMorgan Chase & Co. employee Paul Glands, and former Rabobank employee Paul Robson.

And, of course, the full list is in today’s US print edition of the WSJ. Which begs the question: aside from matter of state censorship and free press intervention, what exactly did the UK hope to achieve here? After all, a cursory one minute search would reveal all the names hidden, but now the extra buzz generated by UK’s attempt to quash the story, merely made it that much more interesting to all, and whereas some may have skipped it – after all who really cares about Libor manipulation anymore considering the entire market is openly manipulated by the Fed now – now everyone will focus on the names that were purposefully withheld.

Sheer statist stupidity.

The letter sent to the WSJ is below:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6jeTzE41y5s/story01.htm Tyler Durden

In what is a staggering example of not only state meddling in the affairs of the “free press”, but worse, sheer state idiocy, yesterday the WSJ posted an article on its website revealing that as many as 24 co-conspirators would be exposed shortly in the ongoing Libor manipulation scandal and divulging the names of various individuals on this list. What promptly followed was truly bizarre. As the WSJ reports shortly after posting the article, “a British judge ordered the Journal and David Enrich, the newspaper’s European banking editor, to comply with a request by the U.K.’s Serious Fraud Office prohibiting the newspaper from publishing names of individuals not yet made public in the government’s ongoing investigation into alleged manipulation of the London interbank offered rate, or Libor.” This happened at 7:18 pm London time, after the original WSJ article had already hit the Internet.

The WSJ added that “The order, which applies to publication in England and Wales, also demanded that the Journal remove “any existing Internet publication” divulging the details. It threatened Mr. Enrich and “any third party” with penalties including a fine, imprisonment and asset seizure.”

As a result, the media organization decided to comply with this gross example state censorship, and now in the place of the article, one could find the following note:

… but not before protesting vocally.

The article said the government was preparing to name roughly two dozen traders and brokers, adding that prosecutors were still finalizing their plans and that the list could change, citing people familiar with the process. Inclusion on the list doesn’t represent a formal accusation of wrongdoing and doesn’t mean the individuals will be charged with crimes.

 

“This injunction is a serious affront to press freedom,” said Dow Jones & Co., publisher of the Journal. “We have been left with no choice but to remove the previously published story from WSJ.com and to withhold publication from the print edition of The Wall Street Journal Europe. However, we will continue to vigorously fight the injunction in the coming days.”

Yet it is not the censorship that is most shocking here, but the way the UK’s SFO went about scrubbing the trail. Because while the European version of the newspaper may have retracted the article from today’s print edition, the piece was still in the US version. Furthermore, since the original WSJ article hit the net before it was pulled, it was promptly picked up and reforwarded by either robotic or manned resyndicators of the WSJ. One such example was ValueWalk which took down the salient details that the SFO is so concerned about:

Among those who could be name are several of Hayes’ former coworkers at both Citigroup Inc and UBS AG. Michael Pieri, who was Hayes’ boss while he worked at UBS, was fired by the bank and moved to Australia. Hayes’ former assistant at UBS, Mirhat Alykulov, could also be on the list. Sources said he has been cooperating with investigators from the U.S.

 

Another name which could be on the SFO’s list is Christopher Cecere, who was Hayes’ boss while he worked in Citigroup’s Tokyo operations. Cecere resigned from his position at Citigroup around the same time Hayes was fired. Other people who could be on the list are ex HSBC Holdings plc trader Luke Madden, former JPMorgan Chase & Co. employee Paul Glands, and former Rabobank employee Paul Robson.

And, of course, the full list is in today’s US print edition of the WSJ. Which begs the question: aside from matter of state censorship and free press intervention, what exactly did the UK hope to achieve here? After all, a cursory one minute search would reveal all the names hidden, but now the extra buzz generated by UK’s attempt to quash the story, merely made it that much more interesting to all, and whereas some may have skipped it – after all who really cares about Libor manipulation anymore considering the entire market is openly manipulated by the Fed now – now everyone will focus on the names that were purposefully withheld.

Sheer statist stupidity.

The letter sent to the WSJ is below:

As the excitement of another US equity day session approaches, the BTFATHers can’t help themselves and have lifted the S&P 500 futures to another new all-time record high. Sure, why not, when the Fed has the path illuminated… It would seem the dips that are bought have now been reduced to 3-4 points though what is perhaps more worrisome is that EURJPY has ‘decoupled’ from the exuberance in the last hour.

 

 

but carry is fading…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ug6aTGn1PuQ/story01.htm Tyler Durden

As the excitement of another US equity day session approaches, the BTFATHers can’t help themselves and have lifted the S&P 500 futures to another new all-time record high. Sure, why not, when the Fed has the path illuminated… It would seem the dips that are bought have now been reduced to 3-4 points though what is perhaps more worrisome is that EURJPY has ‘decoupled’ from the exuberance in the last hour.

 

 

but carry is fading…

As the excitement of another US equity day session approaches, the BTFATHers can’t help themselves and have lifted the S&P 500 futures to another new all-time record high. Sure, why not, when the Fed has the path illuminated… It would seem the dips that are bought have now been reduced to 3-4 points though what is perhaps more worrisome is that EURJPY has ‘decoupled’ from the exuberance in the last hour.

 

 

but carry is fading…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ug6aTGn1PuQ/story01.htm Tyler Durden

As the excitement of another US equity day session approaches, the BTFATHers can’t help themselves and have lifted the S&P 500 futures to another new all-time record high. Sure, why not, when the Fed has the path illuminated… It would seem the dips that are bought have now been reduced to 3-4 points though what is perhaps more worrisome is that EURJPY has ‘decoupled’ from the exuberance in the last hour.

 

 

but carry is fading…

Despite the onslaught of confidence-inspiring flim-flam from leadership in Europe and a Spanish Prime Minister (and finance minister) desperate to distract with “soft” survey based data, the hard numbers keep coming in and keep getting worse and worse. The latest, seemingly confirming the IMF’s fearsome forecast that European banks face massive loan losses in the coming years, is Spain’s loan delinquency rate. Bad loans across Spanish banks amounted to $247 billion in August – a new record-breaking 12.12% of all loans outstanding (now 30% higher than any previous crisis in the history of Spain). Credit creation continues to implode with a 12.3% plunge in total loans outstanding but of course, none of that matters (for now), as Spanish bond spreads (and yields) press back towards pre-crisis lows…

 

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/JLQHWTonYOI/story01.htm Tyler Durden

Despite the onslaught of confidence-inspiring flim-flam from leadership in Europe and a Spanish Prime Minister (and finance minister) desperate to distract with “soft” survey based data, the hard numbers keep coming in and keep getting worse and worse. The latest, seemingly confirming the IMF’s fearsome forecast that European banks face massive loan losses in the coming years, is Spain’s loan delinquency rate. Bad loans across Spanish banks amounted to $247 billion in August – a new record-breaking 12.12% of all loans outstanding (now 30% higher than any previous crisis in the history of Spain). Credit creation continues to implode with a 12.3% plunge in total loans outstanding but of course, none of that matters (for now), as Spanish bond spreads (and yields) press back towards pre-crisis lows…

 

 

Charts: Bloomberg

While the downward Q4 GDP revisions were inevitable courtesy of the government shutdown scapegoat (making a joke out of the sellside exuberance in late 2012 which had seen 3% growth some time around now,) starting first at Goldman, and shortly after at JPM both of which cut their Q4 GDP forecasts by 0.5% to 2.0%, we had yet to see the persistent bullish bias spill over into 2014. That just changed following an overnight cut by Bank of America of Q1 2014 growth estimates from 3.3% to 2.8%. Certainly, this is the first of many as once again optimism proves unjustified. But who can blame it: after all there will have been “only” 5 years of QE, and the Fed’s balance sheet will be only $4 trillion at December 31, 2013, implying a S&P of 1800.

From Bank of America:

This week’s budget agreement was good news for the economy and confirms our baseline forecast. We had expected an agreement right before the October 17 deadline with no new fiscal austerity in the package, and that is exactly what we got. We have made a minor change in our GDP forecast: we continue to see just 2% 4Q GDP growth, but we have cut 1Q back from 3.3% to 2.8%. This reflects offsetting factors: government spending will bounce back in 1Q, but with new budget deadlines we expect mild confidence headwinds to persist into the quarter. Our Fed call remains the same, with a $10 bn tapering in January and with a later move more likely than a sooner move.

 

Looking ahead, the broad story remains the same. Growth in the last several years has been held back by three factors: structural healing in the private sector, fiscal austerity and confidence shocks. Looking ahead, confidence remains at risk but the structural healing is well advanced and fiscal drag drops significantly. At the same time, we think inflation is likely to remain below the Fed’s forecast, with abundant spare capacity in the US and globally, soft commodity prices and a strong dollar. This implies a super-slow Fed exit. We don’t expect QE to end until next November and we don’t expect rate hikes until the end of 2015.

 

The budget agreement sets three new deadlines. First, another bi-partisan Committee will be formed and is supposed to come up with a “grand bargain” by December 13. Second, the new continuing resolution will expire on January 15 and there will need to be a new agreement to avoid another shutdown. Finally, the new debt ceiling is on February 7. Let’s look at the likely outcome from these three deadlines.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XhKGeYkD0Qs/story01.htm Tyler Durden

While the downward Q4 GDP revisions were inevitable courtesy of the government shutdown scapegoat (making a joke out of the sellside exuberance in late 2012 which had seen 3% growth some time around now,) starting first at Goldman, and shortly after at JPM both of which cut their Q4 GDP forecasts by 0.5% to 2.0%, we had yet to see the persistent bullish bias spill over into 2014. That just changed following an overnight cut by Bank of America of Q1 2014 growth estimates from 3.3% to 2.8%. Certainly, this is the first of many as once again optimism proves unjustified. But who can blame it: after all there will have been “only” 5 years of QE, and the Fed’s balance sheet will be only $4 trillion at December 31, 2013, implying a S&P of 1800.

From Bank of America:

This week’s budget agreement was good news for the economy and confirms our baseline forecast. We had expected an agreement right before the October 17 deadline with no new fiscal austerity in the package, and that is exactly what we got. We have made a minor change in our GDP forecast: we continue to see just 2% 4Q GDP growth, but we have cut 1Q back from 3.3% to 2.8%. This reflects offsetting factors: government spending will bounce back in 1Q, but with new budget deadlines we expect mild confidence headwinds to persist into the quarter. Our Fed call remains the same, with a $10 bn tapering in January and with a later move more likely than a sooner move.

 

Looking ahead, the broad story remains the same. Growth in the last several years has been held back by three factors: structural healing in the private sector, fiscal austerity and confidence shocks. Looking ahead, confidence remains at risk but the structural healing is well advanced and fiscal drag drops significantly. At the same time, we think inflation is likely to remain below the Fed’s forecast, with abundant spare capacity in the US and globally, soft commodity prices and a strong dollar. This implies a super-slow Fed exit. We don’t expect QE to end until next November and we don’t expect rate hikes until the end of 2015.

 

The budget agreement sets three new deadlines. First, another bi-partisan Committee will be formed and is supposed to come up with a “grand bargain” by December 13. Second, the new continuing resolution will expire on January 15 and there will need to be a new agreement to avoid another shutdown. Finally, the new debt ceiling is on February 7. Let’s look at the likely outcome from these three deadlines.

• Republican Civil War Erupts: Business Groups v. Tea Party (BBG)
• Budget fight leaves Boehner ‘damaged’ but still standing (Reuters)
• Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury (BBG) – just like Bernanke
• Republicans press U.S. officials over Obamacare snags (Reuters)
• Brilliant: Fed Unlikely to Trim Bond Buying in October (Hilsenrath)
• More brilliant: Fed could taper as early as December (FT)
• Russia Roofing Billionaires Seen Among Country’s Youngest (BBG)
• Ford’s Mulally won’t dismiss Boeing, Microsoft speculation (Reuters)
• China reverses first-half slowdown (FT)
• NY Fed’s Fired Goldman Examiner Makes Weird Case (BBG)
• Italian protests against Letta government disrupt transport (Reuters)
• Transit workers strike again, will hamper Bay Area commute (Reuters)

 

Overnight Media Digest

WSJ

* SAC Capital and federal prosecutors have agreed in principle on a penalty exceeding $1 billion in a potential criminal settlement that would be the largest ever for an insider-trading case.

* Insurers say the federal healthcare marketplace is generating flawed data that is straining their ability to handle even the trickle of enrollees who have gotten through so far.

* Chinese PC maker Lenovo is actively considering a bid for all of BlackBerry and has signed a non-disclosure agreement with the smartphone maker. ()

* A late surge of cases against low-level offenders will push the SEC’s case total close to last year’s levels, masking a steep drop in enforcement actions related to the financial crisis. While the total hasn’t been announced, it likely will be down at least 5 percent from a near-record high of 734 enforcement cases in fiscal 2012.

* Google posted a 12 percent increase in third-quarter revenue, as it tries to keep pace with its users’ shift to mobile devices.

* Video-streaming service Hulu on Thursday named Mike Hopkins as its new chief executive, effective immediately. Hopkins has been president of Fox Networks Group, a division of 21st Century Fox Inc, since 2008 and a member of Hulu’s board since 2011.

* A U.S. district judge ordered subprime lender Household International Inc – now part of HSBC Holdings PLC – to pay investors $2.46 billion in a class-action lawsuit, a move that comes several years after a jury found the company liable for securities fraud.

* IBM is shaking up leadership of its growth-markets unit, following disappointing third-quarter results that prompted a critical internal email from CEO Virginia Rometty. She wrote that IBM’s strategy is correct, but criticized the company for failing to execute in sales of computer hardware as well as in the growth markets unit, whose sales territory includes markets in Southeast Asia, Eastern Europe, the Middle East and Latin America.

 

FT

Paul Tucker, the Bank of England’s outgoing deputy governor, said regulators need to keep a stronger eye on hedge funds and shadow banks and added it would be disastrous if the economic fragility of banks was recreated outside the mainstream banking sector.

The U.S. Federal Reserve could begin reducing its asset purchases as early as December after the government shutdown sabotaged a crucial month of data and dealt a blow to the world’s largest economy.

The next U.S. monthly employment report became a casualty of the U.S. government shutdown with the Department of Labor saying the data would be released after a delay of more than two weeks on Tuesday.

Scottish National Party leader and Scotland’s first minister, Alex Salmond was involved in the talks between the management and workers Grangemouth refinery and petrochemicals complex. The management has closed off the refinery demanding that workers accept changes to pay, pensions and union representation in what has turned out to be Scotland’s biggest industrial dispute in years.

Google shares rose 8 percent to a record high after the company managed a smooth transition of its advertising business to smartphones and tablets from PCs.

Goldman Sachs managed to protect its profits by slashing the amount of money set aside for year-end bonuses after its fixed-income trading was worse than any other large Wall Street bank’s.

Barclays has approached the Court of Appeal to overturn an earlier ruling that allowed Guardian Care Homes, which is suing Barclays over interest-rate swaps, to amend its claim to include Libor-related allegations.

UK Ministers will look at the green measures that have contributed to rising fuel bills after British Gas became the second energy company to increase energy prices.

 

NYT

* Britain said on Thursday that it would allow Chinese firms to buy stakes in British nuclear power plants and eventually acquire majority holdings. The agreement, which comes with caveats, opens the way for China’s fast-growing nuclear industry to play a significant role in Britain’s plans to proceed with construction of its first new reactor in nearly two decades.

* The hedge fund SAC Capital Advisors is moving closer to a plea deal with prosecutors that would force it to wind down its business of managing money for outside investors, punctuating its decline from the envy of Wall Street to a firm caught in the government’s cross hairs. An agreement to stop operating as an investment adviser is one feature of a larger agreement SAC is negotiating as it seeks to resolve insider trading charges, according to people briefed on the case.

* On Thursday Goldman Sachs Group Inc announced that revenue in its fixed-income, currency and commodities division, a powerful unit inside the bank that in better years has produced more than 35 percent of its entire revenue, dropped 44 percent from year-ago levels. The weakness renewed worries about the headwinds that Goldman and other banks are facing in big money-producing areas like fixed-income trading.

* Google Inc impressed investors, but people’s changing behavior on mobile phones and even on desktops threatens the company’s main business. The results revealed the company’s deep challenges: as its desktop search and advertising businesses mature, along with overall business in the United States, its growth rate is slowing and the amount of money it makes from each ad it sells is falling.

* The United States government sputtered back to life Thursday after President Obama and Congress ended a 16-day shutdown, reopening tourist spots and clearing the way for feder
al agencies to deliver services and welcome back hundreds of thousands of furloughed workers.

* There is a confusion over the text of the deal that Congress just approved and President Obama signed, but it does not kill the debt ceiling. At first glance, the “default prevention” section of the bill seemed to imply that the president would have the authority in the future to increase the country’s debt unilaterally, and that Congress could stop him only by passing a bill forbidding it.

* Roughly 1,500 fires burn above western North Dakota because of the deliberate burning of natural gas by companies rushing to drill for oil without having sufficient pipelines to transport their production. With cheap gas bubbling to the top with expensive oil, the companies do not have an economic incentive to build the necessary gas pipelines, so they flare the excess gas instead.

* As European interest in American craft beers begins to mirror the mania for them stateside, the Duvel Moortgat Brewery of Belgium on Thursday announced a deal to buy the Boulevard Brewing Co, a craft brewery in Kansas City, Missouri.

 

Canada

THE GLOBE AND MAIL

* Canadian provinces have approved the free-trade agreement with the European Union, but key players Ontario and Quebec are insisting the federal government open its wallet to mitigate some of the impact, notably by compensating dairy producers. Prime Minister Stephen Harper arrived in Brussels on Thursday night and plans to meet with Jose Manuel Barroso, president of the European Commission, on Friday afternoon to sign the agreement.

* The shortage of skilled employees in Canada is deepening, and government policies that tightened the rules governing foreign workers have made the situation worse. That is the message of a new study from global recruiting firm Hays Plc, which surveyed the skills gap in 30 developed countries around the world.

Reports in the business section:

* Lenovo Group Ltd is joining the list of suitors considering a bid for BlackBerry Ltd , raising concerns that the Canadian company’s ultra-secure communications network for the global elite might end up owned by a firm based in China.

* Imperial Oil Ltd is looking at a major revamp of its Mackenzie gas project that would see the stalled northern venture reborn as part of an expansive liquefied natural gas development, the company’s chief executive says. A shift to LNG is under “serious” consideration as the Mackenzie pipeline’s economics remain weak due to the flood of cheap shale gas across the continent, CEO Rich Kruger said in an interview at the company’s Calgary headquarters.

NATIONAL POST

* The Quebec government has announced that it will contest the latest nomination to the Supreme Court of Canada, adding a new layer of controversy to the process. The provincial government says it is weighing different options to block the Harper government’s appointment of Marc Nadon, which is already under attack.

FINANCIAL POST

* Canada’s campaign to win approval in the United States for the Keystone XL pipeline may seem pricey, aggressive, and perhaps out of character – but it is a drop in the bucket compared with the resources and tactics of those rallying against it.

* Air Canada’s chief executive, Calin Rovinescu, says he is pleased investors are starting to get on board with the dramatic transformation underway at his airline, including the near-elimination of its multi-billion-dollar pension funding deficit that has twice threatened to upend the company in recent years. But he said there are still plenty of challenges ahead for the country’s largest carrier.

 

China

CHINA SECURITIES JOURNAL

– The China Securities Regulatory Commission approved China Everbright Bank Co Ltd’s request to list H shares on Wednesday, according to sources. The bank plans to list in Hong Kong as early as November, but listing is subject to Hong Kong Stock Exchange approval.

– China has started laying the foundations for its fifth-generation mobile telephony network, said Dai Xiaohui, the deputy director of the Ministry of Science and Technology on Thursday at a communications forum.

CHINA DAILY

– China has investigated 129 officials at prefectural level or higher for suspected corruption and bribery from January through August this year, the Supreme People’s Procuratorate said on Thursday.

PEOPLE’S DAILY

– Chinese officials should not blindly follow customary practices if such practices lead to waste or are not legal, said a commentary in the paper that acts as the government’s mouthpiece. The article highlighted extravagance during opening and closing ceremonies as an example of a traditional practice best curbed.

SHANGHAI DAILY

– Beijing will take half the cars off the city’s roads and suspend school classes when there are three straight days of heavy pollution, an official said on Thursday. The plan includes measures to increase buses and extend subway operating hours.

 

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

AMAG Pharmaceuticals (AMAG) upgraded to Outperform from Neutral at RW Baird
Align Technology (ALGN) upgraded to Buy from Hold at Cantor
Amazon.com (AMZN) upgraded to Buy from Neutral at UBS
CBOE Holdings (CBOE) upgraded to Buy from Neutral at UBS
Essex Property Trust (ESS) upgraded to Buy from Neutral at UBS
Intuit (INTU) upgraded to Buy from Neutral at BofA/Merrill
Peabody Energy (BTU) upgraded to Outperform from Market Perform at BMO Capital
Union Pacific (UNP) upgraded to Buy from Neutral at Goldman
VMware (VMW) upgraded to Overweight from Neutral at JPMorgan
Verizon (VZ) upgraded to Buy from Hold at Deutsche Bank

Downgrades

AMD (AMD) downgraded to Neutral from Buy at BofA/Merrill
Alpha Natural (ANR) downgraded to Underperform from Market Perform at BMO Capital
Amarin (AMRN) downgraded to Neutral from Buy at Citigroup
Aspen Technology (AZPN) downgraded to Neutral from Overweight at JPMorgan
Baxter (BAX) downgraded to Market Perform from Outperform at Raymond James
Fairchild Semiconductor (FCS) downgraded to Hold from Buy at Canaccord
Home Bancshares (HOMB) downgraded to Market Perform from Outperform at Raymond James
International Rectifier (IRF) downgraded to Market Perform at Wells Fargo
LG Display (LPL) downgraded to Neutral from Outperform at Credit Suisse
Monolithic Power (MPWR) downgraded to Market Perform from Outperform at Wells Fargo
Navistar (NAV) downgraded to Underweight from Equal Weight at Barclays
Qualys (QLYS) downgraded to Neutral from Overweight at JPMorgan
SL Green Realty (SLG) downgraded to Hold from Buy at Cantor
Total (TOT) downgraded to Neutral from Buy at UBS
Ultratech (UTEK) downgraded to Hold from Buy at Canaccord
UnitedHealth (UNH) downgraded to Hold from Buy at Cantor

Initiations

Clean Harbors (CLH) initiated with an In-Line at Imperial Capital
Covanta (CVA) initiated with a Hold at Stifel
Fidelity National (FNF) initiated with a Neutral at Janney Capital
Finish Line (FINL) initiated with a Neutral at UBS
First American (FAF) initiated with a Buy at Janney Capital
Gaming & Leisure (GLPIV) initiated with an In-Line at Imperial Capital
Masonite International (DOOR) initiated with an Outperform at RBC Capital
New Residential (NRZ) initiated with a Buy at Sterne Agee
Spectrum Brands (SPB) initiated with an Outperform at BMO Capital
Stewart (STC) initiated with a Neutral at Janney Capital
U.S. Cellular (USM) initiated with an Underperform at FBR Capital

HOT STOCKS

Google CEO said 40% of YouTube traffic comes from mobile
Schlumberger (SLB) said global economic ou
tlook remains unchanged
Fitch cut Darden (DRI) IDR to ‘BBB-‘ from ‘BBB’, outlook stable
LabCorp (LH) board authorized additional $1B share repurchase program
AMD (AMD) sees PC shipments down 10% in 2013 and 2014
Waste Management (WM) to build renewable natural gas facility

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Sensient (SXT), F.N.B. Corp. (FNB), AMD (AMD), Las Vegas Sands (LVS), Capital One (COF), Covenant Transportation (CVTI), WD-40 (WDFC), Google (GOOG), Align Technology (ALGN)

Companies that missed consensus earnings expectations include:
Valmont (VMI), Kaiser Aluminum (KALU), B&G Foods (BGS), athenahealth (ATHN), Greenhill & Co. (GHL), Acacia Research (ACTG), Stryker (SYK), Chipotle (CMG)

Companies that matched consensus earnings expectations include:
OceanFirst Financial (OCFC), Western Alliance (WAL), Werner (WERN)

NEWSPAPERS/WEBSITES

• The long-running drama about when the Fed will start scaling back its $85B a-month bond-buying program might now last longer. It isn’t clear when the first move will occur. The Fed is unlikely to start curtailing its bond buying at its next policy meeting Oct. 29-30, the Wall Street Journal reports
• Bank of America (BAC) is considering a checking account that wouldn’t permit customers to overdraw their balances at an ATM or when making an automatic bill payment, sources say, the Wall Street Journal reports
• Ford (F) CEO Alan Mulally would not confirm or deny media reports that he is being sought to join Boeing (BA) and Microsoft (MSFT), Reuters reports
• Air France -KLM (AFLYY) is open to giving Alitalia its rightful role in a merged entity but only if certain conditions are met, CEO Alexandre de Juniac told French television. He said Alitalia needs deeper restructuring if Air France is to eventually hike its 25% stake and take control, Reuters reports
• DBS Group (DBSDY) is among banks that have advanced in bidding for Societe Generale’s (SCGLY) SA’s private banking assets in Asia, sources say. The division oversees about $13B, Bloomberg reports
• JPMorgan Chase (JPM) agreed to sell 1 Chase Manhattan Plaza to Fosun International, the investment arm of China’s biggest closely held industrial group, for $725M, Bloomberg reports

SYNDICATE

Cinedigm Digital (CIDM) files to sell 7.91M shares of Class A common stock
Crestwood Midstream (CMLP) files to sell 14M common units for limited partners
EV Energy (EVEP) files to sell 5M common units for limited partners
Evercore Partners (EVR) files to sell 3M shares of common stock
Stemline (STML) files to sell $90M of common stock
Voxeljet (VJET) 6.5M share IPO priced at $13.00

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/eIZw8b-k93M/story01.htm Tyler Durden

• Republican Civil War Erupts: Business Groups v. Tea Party (BBG)
• Budget fight leaves Boehner ‘damaged’ but still standing (Reuters)
• Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury (BBG) – just like Bernanke
• Republicans press U.S. officials over Obamacare snags (Reuters)
• Brilliant: Fed Unlikely to Trim Bond Buying in October (Hilsenrath)
• More brilliant: Fed could taper as early as December (FT)
• Russia Roofing Billionaires Seen Among Country’s Youngest (BBG)
• Ford’s Mulally won’t dismiss Boeing, Microsoft speculation (Reuters)
• China reverses first-half slowdown (FT)
• NY Fed’s Fired Goldman Examiner Makes Weird Case (BBG)
• Italian protests against Letta government disrupt transport (Reuters)
• Transit workers strike again, will hamper Bay Area commute (Reuters)

 

Overnight Media Digest

WSJ

* SAC Capital and federal prosecutors have agreed in principle on a penalty exceeding $1 billion in a potential criminal settlement that would be the largest ever for an insider-trading case.

* Insurers say the federal healthcare marketplace is generating flawed data that is straining their ability to handle even the trickle of enrollees who have gotten through so far.

* Chinese PC maker Lenovo is actively considering a bid for all of BlackBerry and has signed a non-disclosure agreement with the smartphone maker. ()

* A late surge of cases against low-level offenders will push the SEC’s case total close to last year’s levels, masking a steep drop in enforcement actions related to the financial crisis. While the total hasn’t been announced, it likely will be down at least 5 percent from a near-record high of 734 enforcement cases in fiscal 2012.

* Google posted a 12 percent increase in third-quarter revenue, as it tries to keep pace with its users’ shift to mobile devices.

* Video-streaming service Hulu on Thursday named Mike Hopkins as its new chief executive, effective immediately. Hopkins has been president of Fox Networks Group, a division of 21st Century Fox Inc, since 2008 and a member of Hulu’s board since 2011.

* A U.S. district judge ordered subprime lender Household International Inc – now part of HSBC Holdings PLC – to pay investors $2.46 billion in a class-action lawsuit, a move that comes several years after a jury found the company liable for securities fraud.

* IBM is shaking up leadership of its growth-markets unit, following disappointing third-quarter results that prompted a critical internal email from CEO Virginia Rometty. She wrote that IBM’s strategy is correct, but criticized the company for failing to execute in sales of computer hardware as well as in the growth markets unit, whose sales territory includes markets in Southeast Asia, Eastern Europe, the Middle East and Latin America.

 

FT

Paul Tucker, the Bank of England’s outgoing deputy governor, said regulators need to keep a stronger eye on hedge funds and shadow banks and added it would be disastrous if the economic fragility of banks was recreated outside the mainstream banking sector.

The U.S. Federal Reserve could begin reducing its asset purchases as early as December after the government shutdown sabotaged a crucial month of data and dealt a blow to the world’s largest economy.

The next U.S. monthly employment report became a casualty of the U.S. government shutdown with the Department of Labor saying the data would be released after a delay of more than two weeks on Tuesday.

Scottish National Party leader and Scotland’s first minister, Alex Salmond was involved in the talks between the management and workers Grangemouth refinery and petrochemicals complex. The management has closed off the refinery demanding that workers accept changes to pay, pensions and union representation in what has turned out to be Scotland’s biggest industrial dispute in years.

Google shares rose 8 percent to a record high after the company managed a smooth transition of its advertising business to smartphones and tablets from PCs.

Goldman Sachs managed to protect its profits by slashing the amount of money set aside for year-end bonuses after its fixed-income trading was worse than any other large Wall Street bank’s.

Barclays has approached the Court of Appeal to overturn an earlier ruling that allowed Guardian Care Homes, which is suing Barclays over interest-rate swaps, to amend its claim to include Libor-related allegations.

UK Ministers will look at the green measures that have contributed to rising fuel bills after British Gas became the second energy company to increase energy prices.

 

NYT

* Britain said on Thursday that it would allow Chinese firms to buy stakes in British nuclear power plants and eventually acquire majority holdings. The agreement, which comes with caveats, opens the way for China’s fast-growing nuclear industry to play a significant role in Britain’s plans to proceed with construction of its first new reactor in nearly two decades.

* The hedge fund SAC Capital Advisors is moving closer to a plea deal with prosecutors that would force it to wind down its business of managing money for outside investors, punctuating its decline from the envy of Wall Street to a firm caught in the government’s cross hairs. An agreement to stop operating as an investment adviser is one feature of a larger agreement SAC is negotiating as it seeks to resolve insider trading charges, according to people briefed on the case.

* On Thursday Goldman Sachs Group Inc announced that revenue in its fixed-income, currency and commodities division, a powerful unit inside the bank that in better years has produced more than 35 percent of its entire revenue, dropped 44 percent from year-ago levels. The weakness renewed worries about the headwinds that Goldman and other banks are facing in big money-producing areas like fixed-income trading.

* Google Inc impressed investors, but people’s changing behavior on mobile phones and even on desktops threatens the company’s main business. The results revealed the company’s deep challenges: as its desktop search and advertising businesses mature, along with overall business in the United States, its growth rate is slowing and the amount of money it makes from each ad it sells is falling.

* The United States government sputtered back to life Thursday after President Obama and Congress ended
a 16-day shutdown, reopening tourist spots and clearing the way for federal agencies to deliver services and welcome back hundreds of thousands of furloughed workers.

* There is a confusion over the text of the deal that Congress just approved and President Obama signed, but it does not kill the debt ceiling. At first glance, the “default prevention” section of the bill seemed to imply that the president would have the authority in the future to increase the country’s debt unilaterally, and that Congress could stop him only by passing a bill forbidding it.

* Roughly 1,500 fires burn above western North Dakota because of the deliberate burning of natural gas by companies rushing to drill for oil without having sufficient pipelines to transport their production. With cheap gas bubbling to the top with expensive oil, the companies do not have an economic incentive to build the necessary gas pipelines, so they flare the excess gas instead.

* As European interest in American craft beers begins to mirror the mania for them stateside, the Duvel Moortgat Brewery of Belgium on Thursday announced a deal to buy the Boulevard Brewing Co, a craft brewery in Kansas City, Missouri.

 

Canada

THE GLOBE AND MAIL

* Canadian provinces have approved the free-trade agreement with the European Union, but key players Ontario and Quebec are insisting the federal government open its wallet to mitigate some of the impact, notably by compensating dairy producers. Prime Minister Stephen Harper arrived in Brussels on Thursday night and plans to meet with Jose Manuel Barroso, president of the European Commission, on Friday afternoon to sign the agreement.

* The shortage of skilled employees in Canada is deepening, and government policies that tightened the rules governing foreign workers have made the situation worse. That is the message of a new study from global recruiting firm Hays Plc, which surveyed the skills gap in 30 developed countries around the world.

Reports in the business section:

* Lenovo Group Ltd is joining the list of suitors considering a bid for BlackBerry Ltd , raising concerns that the Canadian company’s ultra-secure communications network for the global elite might end up owned by a firm based in China.

* Imperial Oil Ltd is looking at a major revamp of its Mackenzie gas project that would see the stalled northern venture reborn as part of an expansive liquefied natural gas development, the company’s chief executive says. A shift to LNG is under “serious” consideration as the Mackenzie pipeline’s economics remain weak due to the flood of cheap shale gas across the continent, CEO Rich Kruger said in an interview at the company’s Calgary headquarters.

NATIONAL POST

* The Quebec government has announced that it will contest the latest nomination to the Supreme Court of Canada, adding a new layer of controversy to the process. The provincial government says it is weighing different options to block the Harper government’s appointment of Marc Nadon, which is already under attack.

FINANCIAL POST

* Canada’s campaign to win approval in the United States for the Keystone XL pipeline may seem pricey, aggressive, and perhaps out of character – but it is a drop in the bucket compared with the resources and tactics of those rallying against it.

* Air Canada’s chief executive, Calin Rovinescu, says he is pleased investors are starting to get on board with the dramatic transformation underway at his airline, including the near-elimination of its multi-billion-dollar pension funding deficit that has twice threatened to upend the company in recent years. But he said there are still plenty of challenges ahead for the country’s largest carrier.

 

China

CHINA SECURITIES JOURNAL

– The China Securities Regulatory Commission approved China Everbright Bank Co Ltd’s request to list H shares on Wednesday, according to sources. The bank plans to list in Hong Kong as early as November, but listing is subject to Hong Kong Stock Exchange approval.

– China has started laying the foundations for its fifth-generation mobile telephony network, said Dai Xiaohui, the deputy director of the Ministry of Science and Technology on Thursday at a communications forum.

CHINA DAILY

– China has investigated 129 officials at prefectural level or higher for suspected corruption and bribery from January through August this year, the Supreme People’s Procuratorate said on Thursday.

PEOPLE’S DAILY

– Chinese officials should not blindly follow customary practices if such practices lead to waste or are not legal, said a commentary in the paper that acts as the government’s mouthpiece. The article highlighted extravagance during opening and closing ceremonies as an example of a traditional practice best curbed.

SHANGHAI DAILY

– Beijing will take half the cars off the city’s roads and suspend school classes when there are three straight days of heavy pollution, an official said on Thursday. The plan includes measures to increase buses and extend subway operating hours.

 

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

AMAG Pharmaceuticals (AMAG) upgraded to Outperform from Neutral at RW Baird
Align Technology (ALGN) upgraded to Buy from Hold at Cantor
Amazon.com (AMZN) upgraded to Buy from Neutral at UBS
CBOE Holdings (CBOE) upgraded to Buy from Neutral at UBS
Essex Property Trust (ESS) upgraded to Buy from Neutral at UBS
Intuit (INTU) upgraded to Buy from Neutral at BofA/Merrill
Peabody Energy (BTU) upgraded to Outperform from Market Perform at BMO Capital
Union Pacific (UNP) upgraded to Buy from Neutral at Goldman
VMware (VMW) upgraded to Overweight from Neutral at JPMorgan
Verizon (VZ) upgraded to Buy from Hold at Deutsche Bank

Downgrades

AMD (AMD) downgraded to Neutral from Buy at BofA/Merrill
Alpha Natural (ANR) downgraded to Underperform from Market Perform at BMO Capital
Amarin (AMRN) downgraded to Neutral from Buy at Citigroup
Aspen Technology (AZPN) downgraded to Neutral from Overweight at JPMorgan
Baxter (BAX) downgraded to Market Perform from Outperform at Raymond James
Fairchild Semiconductor (FCS) downgraded to Hold from Buy at Canaccord
Home Bancshares (HOMB) downgraded to Market Perform from Outperform at Raymond James
International Rectifier (IRF) downgraded to Market Perform at Wells Fargo
LG Display (LPL) downgraded to Neutral from Outperform at Credit Suisse
Monolithic Power (MPWR) downgraded to Market Perform from Outperform at Wells Fargo
Navistar (NAV) downgraded to Underweight from Equal Weight at Barclays
Qualys (QLYS) downgraded to Neutral from Overweight at JPMorgan
SL Green Realty (SLG) downgraded to Hold from Buy at Cantor
Total (TOT) downgraded to Neutral from Buy at UBS
Ultratech (UTEK) downgraded to Hold from Buy at Canaccord
UnitedHealth (UNH) downgraded to Hold from Buy at Cantor

Initiations

Clean Harbors (CLH) initiated with an In-Line at Imperial Capital
Covanta (CVA) initiated with a Hold at Stifel
Fidelity National (FNF) initiated with a Neutral at Janney Capital
Finish Line (FINL) initiated with a Neutral at UBS
First American (FAF) initiated with a Buy at Janney Capital
Gaming & Leisure (GLPIV) initiated with an In-Line at Imperial Capital
Masonite International (DOOR) initiated with an Outperform at RBC Capital
New Residential (NRZ) initiated with a Buy at Sterne Agee
Spectrum Brands (SPB) initiated with an Outperform at BMO Capital
Stewart (STC) initiated with a Neutral at Janney Capital
U.S. Cellular (USM) initiated with an Underperform at FBR Capital

HOT STOCKS

Google CEO said 40% of YouTube
traffic comes from mobile
Schlumberger (SLB) said global economic outlook remains unchanged
Fitch cut Darden (DRI) IDR to ‘BBB-‘ from ‘BBB’, outlook stable
LabCorp (LH) board authorized additional $1B share repurchase program
AMD (AMD) sees PC shipments down 10% in 2013 and 2014
Waste Management (WM) to build renewable natural gas facility

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Sensient (SXT), F.N.B. Corp. (FNB), AMD (AMD), Las Vegas Sands (LVS), Capital One (COF), Covenant Transportation (CVTI), WD-40 (WDFC), Google (GOOG), Align Technology (ALGN)

Companies that missed consensus earnings expectations include:
Valmont (VMI), Kaiser Aluminum (KALU), B&G Foods (BGS), athenahealth (ATHN), Greenhill & Co. (GHL), Acacia Research (ACTG), Stryker (SYK), Chipotle (CMG)

Companies that matched consensus earnings expectations include:
OceanFirst Financial (OCFC), Western Alliance (WAL), Werner (WERN)

NEWSPAPERS/WEBSITES

• The long-running drama about when the Fed will start scaling back its $85B a-month bond-buying program might now last longer. It isn’t clear when the first move will occur. The Fed is unlikely to start curtailing its bond buying at its next policy meeting Oct. 29-30, the Wall Street Journal reports
• Bank of America (BAC) is considering a checking account that wouldn’t permit customers to overdraw their balances at an ATM or when making an automatic bill payment, sources say, the Wall Street Journal reports
• Ford (F) CEO Alan Mulally would not confirm or deny media reports that he is being sought to join Boeing (BA) and Microsoft (MSFT), Reuters reports
• Air France -KLM (AFLYY) is open to giving Alitalia its rightful role in a merged entity but only if certain conditions are met, CEO Alexandre de Juniac told French television. He said Alitalia needs deeper restructuring if Air France is to eventually hike its 25% stake and take control, Reuters reports
• DBS Group (DBSDY) is among banks that have advanced in bidding for Societe Generale’s (SCGLY) SA’s private banking assets in Asia, sources say. The division oversees about $13B, Bloomberg reports
• JPMorgan Chase (JPM) agreed to sell 1 Chase Manhattan Plaza to Fosun International, the investment arm of China’s biggest closely held industrial group, for $725M, Bloomberg reports

SYNDICATE

Cinedigm Digital (CIDM) files to sell 7.91M shares of Class A common stock
Crestwood Midstream (CMLP) files to sell 14M common units for limited partners
EV Energy (EVEP) files to sell 5M common units for limited partners
Evercore Partners (EVR) files to sell 3M shares of common stock
Stemline (STML) files to sell $90M of common stock
Voxeljet (VJET) 6.5M share IPO priced at $13.00

While the US economic data reporting machinery slowly starts churning again following the “reactivation” of government, last night it was Asia’s turn to report a slew of goalseeked economic items. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. Nonetheless, many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking and the fade out of a major credit stimulus in the prior quarter, even as total Chinese debt continues to push ever higher into bubble territory.Speaking of China, however, it is worth noting that overnight the Chinese Yuan rose to the highest level against the dollar in 20 years. This happens as the USD tumbles to nearly a year low, which incidentally is the theme of the overnight session: the ongoing dollar poundage is reverberating across the globe, and the resulting unleashing of global funding carry trades looks set to take the S&P (and everything else) to fresh record highs on the back of even more generous Fed Kool Aid expectations.

On the docket today are a couple more Fed speeches though specifically from Lacker, Tarullo, Evans, Dudley and Stein. If recent trends are any indication. So focus will be on Fed speak as well as the ongoing earnings season. 13 US companies are  lined up to report today including Morgan Stanley and bell-weather General Electric.

Market Re-Cap via RanSquawk

European equities trade in the green across the board following on from a record high close on Wall Street, as participants continue to absorb the government shutdown resolution and factor in its impact on a Fed decision to taper QE.

While the initial European reaction to the fiscal quick fix in the US was not positive yesterday, US participants began to deduce that a renewed debt ceiling debacle could result in the Fed once again refraining from any plans to taper QE in December. This view is supported by the fact that Fed speakers have indicated the proximity to the debt ceiling did impact their decision to keep QE unchanged at the September meeting. With a similar situation being predicted in December, market participants have once again pushed back their view of when a cutback from the Fed will occur; many now see Q1 2014 as more likely.

This prediction of extended QE from the Fed has resulted in buoyant risk appetite, and stocks trading with broad gains, upside has been assisted by tier one Chinese data which came in line with market expectations.

Similarly fixed income remains bid as T-notes pull the rest of the complex higher with significant upside being seen in Bunds and Gilts for the second session running. The knock on effect of this fall in rates and Fed policy continuity for longer has caused USD weakness, adding to losses of more than a per cent in the USD-index yesterday’s session.

Overnight Highlights:

S&P 500 rallies to a record close as government reopens and markets push out expectations of a Fed QE taper.

Delayed data begins to be rescheduled, with September’s Nonfarm Payrolls due on Tuesday 22nd October.

Chinese annualized GDP grows 7.8% in Q3, alongside expectations.

Asian Headlines

Chinese GDP (Q3) Y/Y 7.8% vs. Exp. 7.8% (Prev. 7.5%)
GDP SA (Q3) Q/Q 2.2% vs. Exp. 2.1% (Prev. 1.7%, Rev. 1.9%)
Chinese Industrial Production (Sep) Y/Y 10.2% vs. Exp. 10.2% (Prev. 10.4%)
Industrial Production YTD (Sep) Y/Y 9.6% vs. Exp. 9.6% (Prev. 9.5%)
Chinese Retail Sales (Sep) Y/Y 13.3% vs. Exp. 13.5% (Prev. 13.4%)
Chinese Retail Sales YTD (Sep) Y/Y 12.9% vs. Exp. 12.9% (Prev. 12.8%)

China National Bureau of Statistics said economy growth shows signs of slowing in September. The NBS also stated that the Chinese economy is likely to see stable, fast growth in Q4 and that pro growth policies will continue to help economy.

S&P affirmed Japan at AA-; outlook negative. S&P said that the negative outlook indicates downside risks remain and that it will lower ratings if it perceives the government doesn’t deliver reforms. However, S&P also commented that Japan PM Abe’s measures have improved Japan’s near-term economic outlook.

EU & UK Headlines

The French finance ministry is pushing to have a financial transaction tax eased in order to persuade French banks to take a stake in Euronext, according to sources.

Former Italian PM Monti has resigned from his post as leader of the Centrist party in protest of the budget law passed yesterday by the PM Letta’s Cabinet.

ECB says banks to repay EUR 105mln from first 3y LTRO and EUR 5.094bln from second 3y LTRO.

BoE’s Dale says very unlikely that BoE will raise bank rate in 2014 as they need to see sustained period of strong growth.

US Headlines

September jobs report is to be released on Tuesday October 22nd.

– US PPI report to be released on October 29th.
– US CPI report to be released on October 30th.

Moody’s said a US rating downgrade is unlikely in the next two years. The rating agency said political uncertainty up to October 17th likely hit GDP growth and same GDP impact possible if agreement not reached in 1st quarter. Moody’s added that yesterday’s debt limit agreement contains credit positive elements.

Equities

European equities and US stock futures trade with gains as markets respond to the decreased likelihood of Fed QE tapering in the near-term. Chinese GDP came in line with expectations which has also provided a lift in sentiment.

HSBC’s recently aquired sub-prime lender, Household International, have been ordered by a U.S. district judge to pay investors USD 2.46bln in a class-action lawsuit, a move that comes several years after a jury found the co. liable for securities fraud.

Google shares trade higher by 8% premarket after they reported Q3 non-GAAP EPS USD 10.74 vs. Exp. USD 10.36.

Advanced Micro Devices shares trade lower by 7% despite reporting Q3 Adj. EPS USD 0.04 vs. Exp. USD 0.02 as they annouced they saw PC shipments falling 10% this year and same in 2014.

Notable premarket earnings have been seen from General Electric who’s shares have moved higher by nearly a per cent premarket after Q3 Operating EPS USD 0.36 vs. Exp. USD 0.35. Schlumberger also reported Q3 Adj. EPS USD 1.29 vs. Exp. USD 1.24.

FX

USD has again seen broad weakness in the European morning amid falling rates and the prediction of the Fed continuing to purchase USD 85bln of MBS and Treasuries until the early next year as the US government’s fiscal problem’s have only been resolved for the next three months.

RBA Governor Stevens said lower AUD would be helpful to re-balance the economy and that the direction of AUD is not surprising. Stevens then added that the higher AUD is still sustainable. Goldman Sachs forecasts RBA to cut rates by 25bps in March 2014 vs. Previous forecast of rate cut in November 2013. Goldman added it sees RBA tightening rate cycle from November 2014.

Commodities

SPDR Gold Trust GLD said its holdings fell 0.37% to 882.23 tonnes on Thursday from 885.53 tonnes on Wednesday.

Goldman Sachs sees significant downside in gold, copper.

Goldman Sach’s have forecasted a recovery in the WTI-Brent spread, with earlier weather issues that caused an increase in the spread are beginning to recede.

China’s NDRC are to begin looking at reforms to fuel prices.

As part of the ongoing discussions with Iranian senior officials, the US are weighing easing Iranian sanctions, and may free up assets.

* * *

In conclusion, as always, is the Jim Reid recap of all key ov
ernight items

Following the near-term fiscal resolution in Washington and the
reopening of federal government agencies, investors’ attention should
increasingly shift  towards the upcoming data flow. We do have some gaps
to fill after the two plus week of government shutdown but the main
focus will likely be on  September’s employment report. On that note we
did receive some clarity from the Bureau of Labor Statistics overnight
with a revised data schedule 
(http://www.bls.gov/bls/updated_release_schedule.htm). The September’s
payrolls will now be released on the 22th October while October’s
payrolls will  be delayed by a week to 8th November. The employment
report aside, PPI and CPI reports for September will be released on the
29th and 30th of   October, respectively.

Staying on data theme we are waking up this morning to a fairly decent round of data from China. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. While many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking, DB’s Jun Ma believes that there is a good chance that Q4 GDP will stay at 7.8% or rise to 7.9%. Asian equities are reacting positively to this with bourses in Hong Kong and China up +0.6% and +0.4%, respectively as we go to print. That said, Asian credit markets are largely in consolidation mode after a strong performance over the last few days which saw the Asia iTraxx about 10bps tighter than where it was a week ago.

The overnight moves are also partly helped by a decent session for risk assets yesterday. The S&P 500 (+0.67%) gained for the second consecutive day to close at an all-time high while DM IG credit spreads were about 2-3bps tighter. Investors are also more comfortable in adding EM risks and are certainly not shying away from duration either. Much of this is perhaps a reflection of the solid performance in US rates over the last few days as expectations of a tapering delay continue to creep higher. This drove the 10-year yield 7bps lower to a 10-week low of 2.589%.

As Jim discussed yesterday, it seems highly unlikely that the Fed will risk tapering in December or January assuming the next budget negotiations go close to the wire again and it could be March at the earliest for tapering. Along similar lines, Fed’s Evans yesterday said that the QE taper should be delayed as data flow has been disrupted during the shutdown and the September’s data were inconclusive. This is also a view shared by our US economists. Joe Larvogna is concerned about the integrity of the late data releases and to the extent data collection is muddied, he argues that financial markets will not trust the data, and neither will the Fed. The upshot is therefore an elongation in the timing of QE tapering. This is clearly not a universal view for now as Fed’s George was on the tape yesterday and still thinks the central bank should start taper soon while the FT is also predicting that the Fed could start taper in December.

Away from macro developments, yesterday’s corporate earnings were overall pretty good although the day was somewhat overshadowed by a disappointing quarter at Goldman Sachs. GS’ EPS ($2.88) topped official Bloomberg consensus ($2.47) but fell short versus whispers of $3. Revenue also came below market and much of that was attributable to weakness in its FICC business amid a slow period of client activity. Google’s post-market results were solid though as the company exceeded both earnings and revenue estimates on new advertising channels. In summary the round of earnings yesterday was largely a continuation of the trend that we’ve seen so far in which earnings are outperforming revenue beats. Of the 24 firms that reported yesterday, about 79% of those delivered better-than-expected EPS performance but only 58% of those managed to beat analysts’ revenue estimates.

Looking at the day ahead we have no major data releases scheduled on both sides of the Atlantic. We will have a couple more Fed speeches though specifically from Lacker, Tarullo, Evans, Dudley and Stein. So focus will be on Fed speak as well as the ongoing earnings season. 13 US companies are  lined up to report today including Morgan Stanley and bell-weather General Electric.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KKZtVIwhh3E/story01.htm Tyler Durden

While the US economic data reporting machinery slowly starts churning again following the “reactivation” of government, last night it was Asia’s turn to report a slew of goalseeked economic items. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. Nonetheless, many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking and the fade out of a major credit stimulus in the prior quarter, even as total Chinese debt continues to push ever higher into bubble territory.Speaking of China, however, it is worth noting that overnight the Chinese Yuan rose to the highest level against the dollar in 20 years. This happens as the USD tumbles to nearly a year low, which incidentally is the theme of the overnight session: the ongoing dollar poundage is reverberating across the globe, and the resulting unleashing of global funding carry trades looks set to take the S&P (and everything else) to fresh record highs on the back of even more generous Fed Kool Aid expectations.

On the docket today are a couple more Fed speeches though specifically from Lacker, Tarullo, Evans, Dudley and Stein. If recent trends are any indication. So focus will be on Fed speak as well as the ongoing earnings season. 13 US companies are  lined up to report today including Morgan Stanley and bell-weather General Electric.

Market Re-Cap via RanSquawk

European equities trade in the green across the board following on from a record high close on Wall Street, as participants continue to absorb the government shutdown resolution and factor in its impact on a Fed decision to taper QE.

While the initial European reaction to the fiscal quick fix in the US was not positive yesterday, US participants began to deduce that a renewed debt ceiling debacle could result in the Fed once again refraining from any plans to taper QE in December. This view is supported by the fact that Fed speakers have indicated the proximity to the debt ceiling did impact their decision to keep QE unchanged at the September meeting. With a similar situation being predicted in December, market participants have once again pushed back their view of when a cutback from the Fed will occur; many now see Q1 2014 as more likely.

This prediction of extended QE from the Fed has resulted in buoyant risk appetite, and stocks trading with broad gains, upside has been assisted by tier one Chinese data which came in line with market expectations.

Similarly fixed income remains bid as T-notes pull the rest of the complex higher with significant upside being seen in Bunds and Gilts for the second session running. The knock on effect of this fall in rates and Fed policy continuity for longer has caused USD weakness, adding to losses of more than a per cent in the USD-index yesterday’s session.

Overnight Highlights:

S&P 500 rallies to a record close as government reopens and markets push out expectations of a Fed QE taper.

Delayed data begins to be rescheduled, with September’s Nonfarm Payrolls due on Tuesday 22nd October.

Chinese annualized GDP grows 7.8% in Q3, alongside expectations.

Asian Headlines

Chinese GDP (Q3) Y/Y 7.8% vs. Exp. 7.8% (Prev. 7.5%)
GDP SA (Q3) Q/Q 2.2% vs. Exp. 2.1% (Prev. 1.7%, Rev. 1.9%)
Chinese Industrial Production (Sep) Y/Y 10.2% vs. Exp. 10.2% (Prev. 10.4%)
Industrial Production YTD (Sep) Y/Y 9.6% vs. Exp. 9.6% (Prev. 9.5%)
Chinese Retail Sales (Sep) Y/Y 13.3% vs. Exp. 13.5% (Prev. 13.4%)
Chinese Retail Sales YTD (Sep) Y/Y 12.9% vs. Exp. 12.9% (Prev. 12.8%)

China National Bureau of Statistics said economy growth shows signs of slowing in September. The NBS also stated that the Chinese economy is likely to see stable, fast growth in Q4 and that pro growth policies will continue to help economy.

S&P affirmed Japan at AA-; outlook negative. S&P said that the negative outlook indicates downside risks remain and that it will lower ratings if it perceives the government doesn’t deliver reforms. However, S&P also commented that Japan PM Abe’s measures have improved Japan’s near-term economic outlook.

EU & UK Headlines

The French finance ministry is pushing to have a financial transaction tax eased in order to persuade French banks to take a stake in Euronext, according to sources.

Former Italian PM Monti has resigned from his post as leader of the Centrist party in protest of the budget law passed yesterday by the PM Letta’s Cabinet.

ECB says banks to repay EUR 105mln from first 3y LTRO and EUR 5.094bln from second 3y LTRO.

BoE’s Dale says very unlikely that BoE will raise bank rate in 2014 as they need to see sustained period of strong growth.

US Headlines

September jobs report is to be released on Tuesday October 22nd.

– US PPI report to be released on October 29th.
– US CPI report to be released on October 30th.

Moody’s said a US rating downgrade is unlikely in the next two years. The rating agency said political uncertainty up to October 17th likely hit GDP growth and same GDP impact possible if agreement not reached in 1st quarter. Moody’s added that yesterday’s debt limit agreement contains credit positive elements.

Equities

European equities and US stock futures trade with gains as markets respond to the decreased likelihood of Fed QE tapering in the near-term. Chinese GDP came in line with expectations which has also provided a lift in sentiment.

HSBC’s recently aquired sub-prime lender, Household International, have been ordered by a U.S. district judge to pay investors USD 2.46bln in a class-action lawsuit, a move that comes several years after a jury found the co. liable for securities fraud.

Google shares trade higher by 8% premarket after they reported Q3 non-GAAP EPS USD 10.74 vs. Exp. USD 10.36.

Advanced Micro Devices shares trade lower by 7% despite reporting Q3 Adj. EPS USD 0.04 vs. Exp. USD 0.02 as they annouced they saw PC shipments falling 10% this year and same in 2014.

Notable premarket earnings have been seen from General Electric who’s shares have moved higher by nearly a per cent premarket after Q3 Operating EPS USD 0.36 vs. Exp. USD 0.35. Schlumberger also reported Q3 Adj. EPS USD 1.29 vs. Exp. USD 1.24.

FX

USD has again seen broad weakness in the European morning amid falling rates and the prediction of the Fed continuing to purchase USD 85bln of MBS and Treasuries until the early next year as the US government’s fiscal problem’s have only been resolved for the next three months.

RBA Governor Stevens said lower AUD would be helpful to re-balance the economy and that the direction of AUD is not surprising. Stevens then added that the higher AUD is still sustainable. Goldman Sachs forecasts RBA to cut rates by 25bps in March 2014 vs. Previous forecast of rate cut in November 2013. Goldman added it sees RBA tightening rate cycle from November 2014.

Commodities

SPDR Gold Trust GLD said its holdings fell 0.37% to 882.23 tonnes on Thursday from 885.53 tonnes on Wednesday.

Goldman Sachs sees significant downside in gold, copper.

Goldman Sach’s have forecasted a recovery in the WTI-Brent spread, with earlier weather issues that caused an increase in the spread are beginning to recede.

China’s NDRC are to begin looking at reforms to fuel prices.

As part of the ongoing discussions with Iranian senior officials, the US are weighing easing Iranian sanctions, and may free up assets.

* * *

In conclusion, as always, is the Jim Reid recap of all key overnight items

Following the near-term fiscal resolution in Washington and the
reopening of federal government agencies, investors’ attention should
increasingly shift  towards the upcoming data flow. We do have some gaps
to fill after the two plus week of government shutdown but the main
focus will likely be on  September’s employment report. On that note we
did receive some clarity from the Bureau of Labor Statistics overnight
with a revised data schedule 
(http://www.bls.gov/bls/updated_release_schedule.htm). The September’s
payrolls will now be released on the 22th October while October’s
payrolls will  be delayed by a week to 8th November. The employment
report aside, PPI and CPI reports for September will be released on the
29th and 30th of   October, respectively.

Staying on data theme we are waking up this morning to a fairly decent round of data from China. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. While many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking, DB’s Jun Ma believes that there is a good chance that Q4 GDP will stay at 7.8% or rise to 7.9%. Asian equities are reacting positively to this with bourses in Hong Kong and China up +0.6% and +0.4%, respectively as we go to print. That said, Asian credit markets are largely in consolidation mode after a strong performance over the last few days which saw the Asia iTraxx about 10bps tighter than where it was a week ago.

The overnight moves are also partly helped by a decent session for risk assets yesterday. The S&P 500 (+0.67%) gained for the second consecutive day to close at an all-time high while DM IG credit spreads were about 2-3bps tighter. Investors are also more comfortable in adding EM risks and are certainly not shying away from duration either. Much of this is perhaps a reflection of the solid performance in US rates over the last few days as expectations of a tapering delay continue to creep higher. This drove the 10-year yield 7bps lower to a 10-week low of 2.589%.

As Jim discussed yesterday, it seems highly unlikely that the Fed will risk tapering in December or January assuming the next budget negotiations go close to the wire again and it could be March at the earliest for tapering. Along similar lines, Fed’s Evans yesterday said that the QE taper should be delayed as data flow has been disrupted during the shutdown and the September’s data were inconclusive. This is also a view shared by our US economists. Joe Larvogna is concerned about the integrity of the late data releases and to the extent data collection is muddied, he argues that financial markets will not trust the data, and neither will the Fed. The upshot is therefore an elongation in the timing of QE tapering. This is clearly not a universal view for now as Fed’s George was on the tape yesterday and still thinks the central bank should start taper soon while the FT is also predicting that the Fed could start taper in December.

Away from macro developments, yesterday’s corporate earnings were overall pretty good although the day was somewhat overshadowed by a disappointing quarter at Goldman Sachs. GS’ EPS ($2.88) topped official Bloomberg consensus ($2.47) but fell short versus whispers of $3. Revenue also came below market and much of that was attributable to weakness in its FICC business amid a slow period of client activity. Google’s post-market results were solid though as the company exceeded both earnings and revenue estimates on new advertising channels. In summary the round of earnings yesterday was largely a continuation of the trend that we’ve seen so far in which earnings are outperforming revenue beats. Of the 24 firms that reported yesterday, about 79% of those delivered better-than-expected EPS performance but only 58% of those managed to beat analysts’ revenue estimates.

Looking at the day ahead we have no major data releases scheduled on both sides of the Atlantic. We will have a couple more Fed speeches though specifically from Lacker, Tarullo, Evans, Dudley and Stein. So focus will be on Fed speak as well as the ongoing earnings season. 13 US companies are  lined up to report today including Morgan Stanley and bell-weather General Electric.