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If there was any doubt that the US housing “recovery” is anything but the latest speculative play by deep-pocketed (namely those who already have access to cheap funding) investors, who are now engaged in rotating cash gains out of capital markets and into real estate, on their way hoping to flip newly-acquired properties to other wealthy investors, then the most recent, September, RealtyTrac report will put that to rest. To wit: Institutional investors (purchasing 10 or more properties in the last 12 months) accounted for 14 percent of all sales in September, up from 9 percent in August and also 9 percent in September 2012. September had the highest percentage of institutional investor purchases of any month since RealtyTrac began tracking in January 2011….All-cash purchases nationwide represented 49 percent of all residential sales in September, up from a revised 40 percent in August and up from 30 percent in September 2012. In other words, institutional purchases are now at all time highs, with all-cash accounting for half of all transactions!

From RealtyTrac:

“The housing market continues to skew in favor of investors, particularly deep-pocketed institutional investors, and other buyers paying with cash,” said Daren Blomquist, vice president at RealtyTrac. “While the institutional investors are pulling back their purchases in many of the higher-priced markets — places like San Francisco, Washington, D.C., New York, Seattle and Sacramento — they are continuing to ramp up purchases in markets where median prices are still below $200,000 — places like Jacksonville, Atlanta, Charlotte, St. Louis and Dallas. The availability of distressed inventory also makes a difference. For example, institutional investor purchases have rebounded in Las Vegas corresponding to a recent rebound in foreclosure activity there.

So after gobbling up all the real estate in the marquee markets, the Private Equity and other loaded with cash institutions have now swooped on the B and C-grade markets, where they have essentially priced out all ordinary remaining buyers, making sure the mortgage origination pathway remains slammed shut, and assured a lifetime of rental existence for the vast majority.

Here are the other distrubing findings from the RealtyTrac report:

• Institutional investors (purchasing 10 or more properties in the last 12 months) accounted for 14 percent of all sales in September, up from 9 percent in August and also 9 percent in September 2012. September had the highest percentage of institutional investor purchases of any month since RealtyTrac began tracking in January 2011.
• Among metro areas with a population of 1 million or more, those with the highest percentage of institutional investor purchases in September were Atlanta (29 percent), Las Vegas (27 percent), St. Louis (25 percent), Jacksonville, Fla., (23 percent), Charlotte, N.C., (17 percent), Memphis, Tenn. (16 percent), Richmond, Va., (15 percent), Dallas (15 percent), and San Antonio, Texas (15 percent).
• All-cash purchases nationwide represented 49 percent of all residential sales in September, up from a revised 40 percent in August and up from 30 percent in September 2012.
• Among metro areas with a population of 1 million or more, those with the highest percentage of all-cash sales were Miami (69 percent), Tampa, Fla. (62 percent), Jacksonville, Fla. (62 percent), Las Vegas (62 percent), Orlando, Fla., (59 percent), Atlanta (54 percent), Cleveland (51 percent), and Memphis, Tenn. (51 percent).
• Short sales accounted for 15 percent of all U.S. residential sales in September, up from 14 percent in August and 9 percent in September 2012. States with the biggest percentage of short sales were Nevada (32 percent), Florida (30 percent), Ohio (26 percent), Maryland (22 percent), and Tennessee (21 percent).
• Among metro areas with a population of 1 million or more, those with the highest percentage of short sales were Las Vegas (34 percent), Columbus, Ohio (33 percent), Tampa, Fla. (33 percent), Memphis, Tenn., (32 percent), and Miami (32 percent).
• Sales of bank-owned homes accounted for 10 percent of all U.S. residential sales in September, up from 9 percent in August and also 9 percent in September 2012. Among metro areas with a population of 1 million or more, those with the highest percentage of bank-owned sales were Las Vegas (21 percent), Riverside-San Bernardino, Calif., (20 percent), Cleveland (19 percent), Phoenix (18 percent), and Columbus, Ohio (16 percent).
• Annualized sales volume increased from the previous month in 34 out of the 38 states tracked in the report and was up from a year ago in 35 states. Notable exceptions where annualized sales volume decreased from a year ago were California (down 15 percent), Arizona (down 11 percent), and Nevada (down 5 percent).
• States with the biggest annual increases in median prices were California (up 30 percent), Michigan (up 25 percent), Nevada (up 23 percent), Georgia (up 20 percent), and Arizona (up 20 percent).
• Among metro areas with a population of 1 million or more, those with the biggest annual increases in median prices were San Francisco (35 percent), Detroit (34 percent), Sacramento (33 percent), Atlanta (27 percent), Riverside-San Bernardino, Calif., (26 percent), and Phoenix (25 percent).
• Home price appreciation showed signs of plateauing in these top six appreciating markets. In all six markets, the annual increase in home prices was down compared to previous months this year.

Why is the above a concern? Because prices are now rolling over. And if there is one thing institutions know (and hate) – it is being the last one holding inventory. In other words, once the selling, pardon dumping, avalanche begins, watch out below.

After having made housing ridiculous expensive for anyone but other institutions, these same PE firms, hedge funds and REITs are now scrambling for the worst of the worst distressed properties anywhere they can be found:

And perhaps the one chart that puts it all into perspective:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/crxB0Ii_P8U/story01.htm Tyler Durden

• Central Banks Drop Tightening Talk as Easy Money Goes On (BBG)
• More Democrats voice Obamacare concerns as website blame goes around (Reuters)
• Contractors Point Fingers Over Health-Law Website (WSJ)
• Jury Decides Against BofA on ‘Hustle’ Program (WSJ)
• Credit Suisse to overhaul interest rates trading business (FT)
• Home Builders Target Higher End (WSJ)
• The Many Lives of Iron Mountain (NYer)
• Busy tourist season nudges Spanish unemployment lower (Reuters)
• Morgan Stanley Joins BofA in Broker Recruiting Truce (BBG)
• Ending World’s Longest Nonstop Flight Adds Five Hours (BBG)
• Walmart to expand number of stores in China (FT)
• Hamptons Sales Surge Fuels High-End Home Tear-Downs (BBG)

 

Overnight Media Digest

WSJ

* Germany said it believed U.S. intelligence may be spying on the chancellor’s cellphone, an intrusion that it said would constitute a “grave breach of trust” between the longtime allies.

* Airlines’ push to lure high-paying fliers with flatbed business seats is leaving economy-class passengers with less space. Big carriers including American Airlines, Air Canada and Air France are cutting space by wedging an extra seat into each coach row.

* A jury found Bank of America liable for fraud related to loans its Countrywide unit sold to mortgage-finance giants Fannie Mae and Freddie Mac in a program called the “Hustle” in 2007 and 2008.

* A preliminary gauge of Chinese factory activity showed an uptick in October, in a mildly positive sign for the world’s No. 2 economy amid questions of whether it can sustain rapid growth.

* Big aluminum makers Alcoa and Rusal have objected to a proposal aimed at easing bottlenecks.

* Bambi Holzer, a Beverly Hills, California, financial broker, has been suspended from practicing after dozens of consumer complaints dating back more than two decades.

* Brazil’s government Wednesday swept into the global bond market, issuing $3.2 billion in new bonds due 2025, as investors set aside some of their pessimism on emerging markets and Brazil in particular.

* The remnants of Lehman Brothers Holdings Inc is suing the New York Giants for more than $100 million it says it is owed for a soured interest-rate swap tied to the financing of the football team’s stadium.

 

FT

A jury found Bank of America liable for fraud on Wednesday over selling defective home loans to two government-backed mortgage companies, delivering the U.S. government a major win on a financial crisis case.

The U.S. Department of Justice has launched a probe into the mortgage-backed securities sales of at least nine banks as part of an effort by the task force that slapped JPMorgan Chase with a $13 billion fine, people familiar with the matter say.

American Realty Capital Properties said it would pay $11.2 billion for Cole Real Estate Investments, creating the largest net-leased real estate investment trust in the United States.

GlaxoSmithKline’s third-quarter drug sales in China plunged 61 percent following a high-profile bribery probe launched by Beijing into Britain’s biggest drugmaker’s alleged business practices.

The value of San Francisco-based Pinterest rose by over 50 percent to $3.8 billion after the online scrapbook raised $225 million in equity funding.

 

NYT

* Bank of America, one of the nation’s largest banks, was found liable on Wednesday of having sold defective mortgages, a jury decision that will be seen as a victory for the government in its aggressive effort to hold banks accountable for their role in the housing crisis.

* Prosecutors are said to be considering criminal penalties against JPMorgan over its dealings with Bernard Madoff, suspecting it turned a blind eye to his Ponzi scheme.

* As technical failures bedevil the rollout of President Obama’s health care law, evidence is emerging that one of the program’s loftiest goals – to encourage competition among insurers in an effort to keep costs low – is falling short for many rural Americans.

* The legal battle over Detroit’s eligibility for bankruptcy pits the city against unions and retirees, with a star witness, Governor Rick Snyder of Michigan, to come.

* Chicago Mayor Rahm Emanuel on Wednesday proposed a spending plan for his city next year that is full of nips and tucks: a 75 cent per pack increase in the cigarette tax, higher zoning permit fees for big developments, an end to some retirees’ health insurance subsidies and a rolling hiring freeze.

* Pinterest confirmed on Wednesday that it has raised $225 million in a new round of financing that values the company at $3.8 billion.

* To help finance the expansion into America, British peer-to-peer lender Funding Circle, has raised $37 million from investors led by the venture capital firm Accel Partners.

* A decision by a federal appeals court has ended Delaware’s experiment with confidential arbitration. In an opinion released Wednesday, a three-judge panel for the United States Court of Appeals for the Third Circuit upheld a lower court ruling that Delaware’s state-sponsored arbitration program violated the First Amendment.

* Two of Caterpillar’s biggest-ever deals may have played a role in the $3 billion of market value that the company’s stock shed on Wednesday morning. The maker of heavy equipment disclosed that its third-quarter profit tumbled 44 percent from the same time last year, while revenue fell more than 18 percent for the same period.

* Properties and Cole Real Estate Investments, two of the largest commercial property owners in the country, have agreed to a $7.2 billion deal on Wednesday in which American Realty will buy Cole with a mix of cash and stock, bringing an end to tensions between the companies that have simmered much of the last year.

 

Canada

THE GLOBE AND MAIL

* John Sculley, the former Apple Inc chief executive who famously clashed with Steve Jobs, is exploring a bid for beleaguered BlackBerry Ltd with Canadian partners, sources have told The Globe and Mail.

* Canadian Prime Minister Stephen Harper went on the offensive in the Senate expense-claims scandal, trying to diminish the impact of Senator Mike Duffy’s allegations that the Prime Minister’s Office threa
tened him with expulsion from the Red Chamber if he didn’t repay questionable claims.

Reports in the business section:

* Telus Corp is buying urban-focused wireless upstart Public Mobile for an undisclosed price, eliminating an independent player that had struggled to attract a critical mass of customers.

* Montreal-based CGI Group Inc is hitting back against critics that have blamed it for the glitch-ridden release of the website at the heart of U.S. healthcare reform, arguing the Canadian company is not the “quarterback” that bears the overall responsibility for the failures.

NATIONAL POST

* The chief of the Irish Coast Guard is expressing frustration with Canadian authorities for their February decision to send a derelict, rat-infested “biohazard” bobbing toward the Emerald Isle.

* The Progressive Conservatives are trying to force Ontario’s governing Liberal Party to pay back $950 million for canceling two gas plants prior to the 2011 election.

FINANCIAL POST

* Bank of Canada Governor Stephen Poloz changed the direction of Canadian central banking on Wednesday, back to what it once was – an international bellwether of cautious common sense focused on inflation.

* The Canadian federal government has not been friendly to deals in the telecom sector lately, but Ottawa has actually approved an agreement for Telus Corp to acquire startup mobile carrier Public Mobile.

 

China

SOUTH CHINA MORNING POST

— A suspected triad member was arrested on Wednesday night for attempting to extort money from the crew of the fourth ‘Transformers’ movie in Kowloon. This was the second attempt in five days to blackmail the Paramount Pictures crew during filming in Hong Kong. (link.reuters.com/pac24v)

— DeVere, one of the biggest financial advisory firms to expatriates in Hong Kong, controlling $9 billion in assets worldwide, is facing down accusations of mis-selling and bad practice from former clients and employees, an investigation by the South China Morning Post has revealed. (link.reuters.com/qac24v)

— Sino Land has earned more than HK$4 billion ($515.94 million) from the sale of properties in Hong Kong and the mainland since July. While many see uncertainties in Hong Kong’s residential market, chairman Robert Ng Chee Siong said the company would continue to focus on the city, along with expansion on the mainland and Singapore. (link.reuters.com/sac24v)

THE STANDARD

— More than half of Hong Kong’s financial sector professionals expect a larger bonus this year as they believe their companies’ performances and their own achievements have been satisfactory, according to a poll conducted by eFinancialCareers last month. (link.reuters.com/wac24v)

— The Hong Kong Monetary Authority has reached a consensus with local banks that are likely to scrap the charge for inactive accounts at the end of this month. (link.reuters.com/tac24v)

— Bank of Chongqing’s HK$4.6 billion ($593.33 million) initial public offering was covered by a third. The municipal lender attracted HK$740 million worth of orders from the National Bank of Canada, Tianjin-based micro-investment firm China Fortune Finance and a Chongqing-based investment firm. (link.reuters.com/vac24v)

HONG KONG ECONOMIC JOURNAL

— Zhang Shaoxia, spouse of Yantai North Andre Juice Co Ltd’s chairman Wang An, is to buy a 16.08 percent stake in the company from another shareholder Zhang Jiaming for HK$70.25 million, raising the couple’s stake to 45.55 percent and triggering a general offer for outstanding shares the couple did not already own in the company.

— Jewellery retailer Chow Tai Fook hopes to see online sales contributing to 5 percent of its total revenue in five years, from less than 1 percent currently, according to managing director Kent Wong.

 

Fly On The Wall 7:00 Am Market Snapshot

ANALYST RESEARCH

Upgrades

Chesapeake (CHK) upgraded to Buy from Neutral at Citigroup
Ferro (FOE) upgraded to Outperform from Neutral at Credit Suisse
Goldman Sachs (GS) upgraded to Buy from Hold at Deutsche Bank
JAKKS Pacific (JAKK) upgraded to Buy from Neutral at B. Riley
Lam Research (LRCX) upgraded to Buy from Neutral at Goldman
MainSource Financial (MSFG) upgraded to Outperform at Keefe Bruyette
Texas Capital (TCBI) upgraded to Overweight from Equal Weight at Evercore
US Airways (LCC) upgraded to Buy from Hold at Deutsche Bank
YPF SA (YPF) upgraded to Neutral from Sell at Goldman

Downgrades

Angie’s List (ANGI) downgraded to Neutral from Buy at B. Riley
CF Industries (CF) downgraded to Neutral from Overweight at JPMorgan
Caterpillar (CAT) downgraded to Market Perform from Outperform at Raymond James
Caterpillar (CAT) downgraded to Neutral from Overweight at JPMorgan
Commercial Vehicle Group (CVGI) downgraded to Neutral from Outperform at RW Baird
Dycom (DY) downgraded to Market Perform from Outperform at Raymond James
F5 Networks (FFIV) downgraded to Neutral from Buy at BofA/Merrill
Fusion-io (FIO) downgraded to Equal Weight from Overweight at Morgan Stanley
Fusion-io (FIO) downgraded to Underweight from Neutral at JPMorgan
KKR Financial (KFN) downgraded to Market Perform from Outperform at FBR Capital
Mac-Gray (TUC) downgraded to Sell from Buy at Roth Capital
Modine Manufacturing (MOD) downgraded to Underperform from Neutral at RW Baird
Motorola Solutions (MSI) downgraded to Market Perform from Outperform at Wells Fargo
On Assignment (ASGN) downgraded to Market Perform from Outperform at Wells Fargo
Owens Corning (OC) downgraded to Equal Weight from Overweight at Barclays
Panera Bread (PNRA) downgraded to Hold from Buy at Deutsche Bank
Prosperity Bancshares (PB) downgraded to Market Perform at Keefe Bruyette
Stericycle (SRCL) downgraded to Market Perform from Outperform at Raymond James
U.S. Bancorp (USB) downgraded to Hold from Buy at Deutsche Bank

Initiations

Agnico-Eagle (AEM) initiated with a Hold at Canaccord
Apollo Global (APO) initiated with a Sector Perform at RBC Capital
Baltic Trading (BALT) initiated with an Outperform at Imperial Capital
Barrick Gold (ABX) initiated with a Hold at Canaccord
CVS Caremark (CVS) initiated with an Outperform at FBR Capital
Eldorado Gold (EGO) initiated with a Hold at Canaccord
Express Scripts (ESRX) initiated with an Outperform at FBR Capital
Goldcorp (GG) initiated with a Buy at Canaccord
IAMGOLD (IAG) initiated with a Buy at Canaccord
Kinross Gold (KGC) initiated with a Hold at Canaccord
Plains GP Holdings (PAGP) initiated with a Buy at Jefferies
Silver Wheaton (SLW) initiated with a Buy at Canaccord
Tahoe Resources (TAHO) initiated with a Buy at Canaccord
Walgreens (WAG) initiated with a Market Perform at FBR Capital
Yamana Gold (AUY) initiated with a Buy at Canaccord

HOT STOCKS

McKesson (MCK) to purchase Celesio for $8.3B
R.R. Donnelley (RRD) to acquire Consolidated Graphics (CGX) for $620M
TELUS (TU) to obtain 100% ownership of Public Mobile
Boston Scientific (BSX) to cut up to 1,500 jobs, take $30M charge in Q4
Fidelity National (FNF) to make public offering of $400M in common stock

EARNINGS

Companies that beat consensus earnings expectations last night and today include:

Starwood Hotels (HOT), R.R. Donnelley (RRD), O’Reilly Automotive (ORLY), Ethan Allen (ETH), Teradyne (TER), Hill-Rom (HRC), Symetra Financial (SYA), Assurant (AIZ), Equifax (EFX), Graco (GGG), Everest Re (RE), Leggett & Platt (LEG), Evercore Partners (EVR), Allegiant Travel (ALGT), Symantec (SYMC), Akamai (AKAM), AT&T (T)

Companies that missed consensus earnings expectations include:

Dunkin’ Brands (DNKN), Potash (POT), Cash America (CSH), Diamond Offsho
re (DO), Safeguard Scientifics (SFE), Elan (ELN), TAL International (TAL), CMS Energy (CMS), Service Corp. (SCI), Clearwater Paper (CLW), Varian Medical (VAR), E-Trade (ETFC), 8×8 Inc (EGHT), Fortune Brands (FBHS), Angie’s List (ANGI), Skechers (SKX)

Companies that matched consensus earnings expectations include:

Sequans (SQNS), VASCO Data Security (VDSI), TrueBlue (TBI), Quantum (QTM), , Interface (TILE), Polycom (PLCM), Swift Transportation (SWFT), TripAdvisor (TRIP), Torchmark (TMK)

NEWSPAPERS/WEBSITES

• Alibaba Group Holding (ALBCF) is getting a lot more active in finding U.S. investment opportunities at a time when the Chinese e-commerce giant is also considering an IPO in New York, the Wall Street Journal reports
• Newly built homes in the U.S. are getting pricier as better-heeled buyers have rebounded more quickly from the recession than entry-level buyers, spurring home builders (DHI, KBH, HOV, TMHC, PHM, BZH) to go upscale, the Wall Street Journal reports
• Wal-Mart Stores (WMT) is expanding its China business as it seeks to raise profitability in a slowing retail sector. The company will open up to 110 facilities in China between 2014 and 2016, in addition to the 30 it has already opened this year, Reuters reports
• Korean Air Lines will $3.77B worth of aircraft from Boeing (BA), Reuters reports
• The heads of WellPoint (WLP), Aetna (AET) and at least 10 other insurers met with the Obama administration to discuss correcting flaws in how data from the U.S. health-care marketplaces is transferred to the companies, Bloomberg reports
• Home purchases by institutional buyers reached a record high in September and all-cash buyers accounted for almost half of sales as investors responded to rising demand from renters. Institutional purchases accounted for 14% of sales, according to a new RealtyTrac report, Bloomberg reports

SYNDICATE

Athersys (ATHX) files to sell 10M shares of common stock for Aspire Capital Fund
Fidelity National (FNF) files to sell $400M in common stock
Horsehead Holding (ZINC) files to sell 5M shares of common stock
ING U.S. (VOYA) 33M share Secondary priced at $29.50
Mirati Therapeutics (MRTX) 3.25M share Secondary priced at $17.50
Novadaq (NVDQ) files to sell common stock
XG Technology (XGTI) files to sell $10.375M of common stock

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/G2-FeFBZDv4/story01.htm Tyler Durden

In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the “news” of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last.  On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today’s correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.

The final reading of the Euro area Composite PMI, which includes data for Italy and Spain, will be available on November 6. However, as Goldman notes, given that the deterioration in the services sector at the Euro area aggregate level (1.3pt) was broadly similar to that in Germany (1.4pt) and larger than in France (0.8pt), this suggests significant deterioration (of around 1.6pt) in the services sector among Euro area periphery countries.

The deterioration looked as follows:

That covers China and Europe. In Japan, we got the first official warning on roughly the one year anniversary of Abenomics, that things are starting to break. Moments ago, Economy Minister Amari warned that since the stock market surge has halted, the “wealth effect” is now in danger, even as wages continue to tumble and energy and food input costs are soaring.  No really: from Bloomberg – Japanese stocks are struggling to break through a wall at 14,800 yen, and the wealth effect from rising stock prices is stopping there. More:

• AMARI: EFFECTS OF STOCKS ON JAPAN CONSUMPTION SEEN PAUSING
• AMARI: ECONOMIES OF JAPAN EXPORT DESTINATIONS WEAKENING A BIT
• AMARI: JAPAN PRIVATE CONSUMPTION GROWTH SEEN PAUSING LATELY

So following this bevy of bad news, one would expect that a glance at US equity futures would reveal nothing but green. Sure enough: futures are currently spiking +8 on what else but hope that Bernanke and Yellen will keep the firehose on max while ignoring everything else.

Overnight news bulletin from BBG and Ran

• Chinese HSBC Flash Manufacturing PMI (Oct) M/M 50.9 vs. Exp. 50.4 (Prev. 50.2); New orders at 7 month high.
• China’s benchmark money-market rate rose the most since
  June while the Shanghai Composite Index fell to a one-month lows policy
  makers drained cash from the financial system amid signs of a pickup in
  the economy
• Eurozone Manufacturing PMI (Sep F) M/M 51.3 vs. Exp. 51.4 (Prev. 51.1) and German Manufacturing PMI (Oct A) M/M 51.5 vs. Exp. 51.4 (Prev. 51.1).
• Going forward, market participants will look forward to the release of the latest weekly jobs data, trade balance and another round of earnings from the US (Inc. MSFT, AMZN, F).
• Treasuries steady, 10Y yield holding near July lows as market focus begins to shift to next week’s 2Y/5Y/7Y auctions, FOMC meeting with rate decision on Oct. 30.
• Banks would have to hold enough easy-to-sell assets to survive a 30-day credit drought under a rule to be proposed today by the Fed; may have the greatest effect on banks with big trading operations such as JPMorgan and Goldma
• Era of easy money is shaping up to continue into 2014 as policy makers react to another cooling of global growth, led by weakening in developed nations, stagnant job growth in industrial world
• Janet Yellen’s No. 1 challenge as Fed’s next chairman is to reverse the confusion in markets left by Bernanke’s communications strategy, TD strategist Richard Gilhooly says in interview
• The central banks of Norway and Sweden left rates unchanged at their respective meetings today; the Riksbank signaled it may keep rates on hold lower than previously assessed, while the Norges Bank noted lower than expected inflation and the depreciating krone
• Sovereign yields higher, EU peripheral spreads widen. Asian equities mixed, European stocks and U.S. equity-index futures gain. WTI crude, gold and copper rise

Market Re-Cap from RanSquawk

The risk on sentiment, as evidenced in firmer stocks which gapped higher at the open in reaction to the release of better than expected HSBC flash manufacturing PMI out of China (8-month high), failed to weigh on fixed income products, with Bunds trading steady ahead of various coupon/redemption payments from a number of EU states. The move higher in Europe was driven by industrials and oil & gas sectors, with financials not too far behind in spite of bear steepening of the Euribor curve. The SMI index underperformed; with Credit Suisse trading lower by over 2% after the bank failed to meet analyst expectations and also announced plans to overhaul its interest rate trading business.

Yet again, the move higher in money market rates in China, which saw the seven-day repo jump to 4.5%, which is the highest level since national holidays, resulted in Chinese stocks underperforming its regional peers. However despite the latest up tick in money market rates, there is little evidence to suggest that the PBOC will announce measures to boost liquidity at this stage with analysts at Deutsche Bank noting that recent moves are not outside the historical range of volatility.

Looking elsewhere, the release of somewhat less than impressive Eurozone based PMIs managed to offset the positive sentiment which carried over from the overnight session and meant that EUR/USD traded steady, with EUR/GBP capped by the 200DMA line. Going forward, market participants will look forward to the release of the latest weekly jobs data, trade balance and another round of earnings from the US (Inc. MSFT, AMZN, F).

Asian Headlines

Chinese HSBC Flash Manufacturing PMI (Oct) M/M 50.9 vs. Exp. 50.4 (Prev. 50.2); New orders at 7 month high.

China’s central government will not introduce any bailout package or have large-scale stimulus policy as it did in 2008, according State Information Centre economist Fan Jianping.

EU & UK Headlines

ECB’s Mersch says new long-term LTRO might not be necessary, but all options are open.
Eurozone Manufacturing PMI (Sep F) M/M 51.3 vs. Exp. 51.4 (Prev. 51.1)
Eurozone Services PMI (Sep F) M/M 50.9 vs. Exp. 52.2 (Prev. 52.2)
German Manufacturing PMI (Oct A) M/M 51.5 vs. Exp. 51.4 (Prev. 51.1)
German Services PMI (Oct A) M/M 52.3 vs. Exp. 53.7 (Prev. 53.7)
French Manufacturing PMI (Oct P) M/M 49.4 vs. Exp. 50.1 (Prev. 49.8)
French Services PMI (Oct P) M/M 50.2 vs. Exp. 51.3 (Prev. 51.0)

Analysts at UBS expects coalition talks in Germany to now go on until about end-November. Although many topics on the list are contentious, analysts see a good chance that this deadline is met. If then a postal ballot among the c470,000 SPD members on the draft contract is positive, Mrs Merkel will be re-elected chancellor in the last Bundestag hearing before the winter holiday, and the new government will be in place.

Barclays month-end extension: Euro Agg +0.08y
Barclays month-end extension: Sterling Agg +0.02y

US Headlines

Sen. Jeanne Shaheen, who is up for re-election in 2014, wrote to Obama on Tuesday and asked him to delay the enrollment deadline for the individual mandate.

“Given the existing problems with the website, I urge you to consider extending open enrollment beyond the current end date of March 31, 2014,” Shaheen wrote to the president. “Allowing extra time for consumers is critically important so they have the opportunity to become familiar with the website, survey their options and enroll.”

Analysts at Citi say the exact timing of the start of Fed tapering is highly uncertain, but now expect that tapering will be pushed back to March, with asset purchases not ending fully until late 2014.

Barclays month-end extension: Treasury +0.06y.

Equities

Stocks traded higher, with industrials and oil & gas sectors outperforming, as market participants reacted to the release of better than expected HSBC flash manufacturing PMI data out of China. However the SMI index in Switzerland underperformed, with Credit Suisse trading lower by over 2% after the bank failed to meet analyst expectations and also announced plans to overhaul its interest rate trading business.

FX

In spite of the risk on sentiment, supported by the release of better than expected HSBC flash manufacturing PMI from China, yet another rise in money market rates in China meant that USD/JPY failed to benefit from the positive sentiment. As a result, the pair traded steady, in close proximity to the 200DMA line.

RBA deputy governor Lowe said AUD may realign as mining boom wanes and the global economy recovers. Lowe added that weaker AUD since April is a welcome development, adding that the impact of low interest rates evident and has further to run. RBA’s Lowe further stated that inflation is only a touch higher, overall still looks pretty benign and commented that high exchange rate is the biggest structural headwind to the economy.

Commodities

Goldman Sachs said it expects gold prices to fall in 2014 driven by improving US economic data, rising real rates and the commencement of tapering of monetary stimulus by the Fed. The bank expects gold price to decline to USD 1,144 per ounce in 2014. Separately, gold seen by UBS analysts having more to gain on bank regulation.

Silver market seen in surplus next year, according to analysts at HSBC.

Nyrstar lowered forecast for zinc output from own mines to 265-280ktons from 300-400ktons previously.

An Iranian lawmaker has said that the nation has halted enriched uranium production up to 20%, therefore a few steps from which experts believe nuclear weapons can be produced. However, no other Iranian officials at this point in time have confirmed this news.

The US are said to be ‘very concerned’ about Turkeys potential missile deal with China and are holding discussions with Turkey, according to the US Ambassador.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sr_TfePy4gI/story01.htm Tyler Durden

In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the “news” of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last.  On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today’s correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.

The final reading of the Euro area Composite PMI, which includes data for Italy and Spain, will be available on November 6. However, as Goldman notes, given that the deterioration in the services sector at the Euro area aggregate level (1.3pt) was broadly similar to that in Germany (1.4pt) and larger than in France (0.8pt), this suggests significant deterioration (of around 1.6pt) in the services sector among Euro area periphery countries.

The deterioration looked as follows:

That covers China and Europe. In Japan, we got the first official warning on roughly the one year anniversary of Abenomics, that things are starting to break. Moments ago, Economy Minister Amari warned that since the stock market surge has halted, the “wealth effect” is now in danger, even as wages continue to tumble and energy and food input costs are soaring.  No really: from Bloomberg – Japanese stocks are struggling to break through a wall at 14,800 yen, and the wealth effect from rising stock prices is stopping there. More:

• AMARI: EFFECTS OF STOCKS ON JAPAN CONSUMPTION SEEN PAUSING
• AMARI: ECONOMIES OF JAPAN EXPORT DESTINATIONS WEAKENING A BIT
• AMARI: JAPAN PRIVATE CONSUMPTION GROWTH SEEN PAUSING LATELY

So following this bevy of bad news, one would expect that a glance at US equity futures would reveal nothing but green. Sure enough: futures are currently spiking +8 on what else but hope that Bernanke and Yellen will keep the firehose on max while ignoring everything else.

Overnight news bulletin from BBG and Ran

• Chinese HSBC Flash Manufacturing PMI (Oct) M/M 50.9 vs. Exp. 50.4 (Prev. 50.2); New orders at 7 month high.
• China’s benchmark money-market rate rose the most since
  June while the Shanghai Composite Index fell to a one-month lows policy
  makers drained cash from the financial system amid signs of a pickup in
  the economy
• Eurozone Manufacturing PMI (Sep F) M/M 51.3 vs. Exp. 51.4 (Prev. 51.1) and German Manufacturing PMI (Oct A) M/M 51.5 vs. Exp. 51.4 (Prev. 51.1).
• Going forward, market participants will look forward to the release of the latest weekly jobs data, trade balance and another round of earnings from the US (Inc. MSFT, AMZN, F).
• Treasuries steady, 10Y yield holding near July lows as market focus begins to shift to next week’s 2Y/5Y/7Y auctions, FOMC meeting with rate decision on Oct. 30.
• Banks would have to hold enough easy-to-sell assets to survive a 30-day credit drought under a rule to be proposed today by the Fed; may have the greatest effect on banks with big trading operations such as JPMorgan and Goldma
• Era of easy money is shaping up to continue into 2014 as policy makers react to another cooling of global growth, led by weakening in developed nations, stagnant job growth in industrial world
• Janet Yellen’s No. 1 challenge as Fed’s next chairman is to reverse the confusion in markets left by Bernanke’s communications strategy, TD strategist Richard Gilhooly says in interview
• The central banks of Norway and Sweden left rates unchanged at their respective meetings today; the Riksbank signaled it may keep rates on hold lower than previously assessed, while the Norges Bank noted lower than expected inflation and the depreciating krone
• Sovereign yields higher, EU peripheral spreads widen. Asian equities mixed, European stocks and U.S. equity-index futures gain. WTI crude, gold and copper rise

Market Re-Cap from RanSquawk

The risk on sentiment, as evidenced in firmer stocks which gapped higher at the open in reaction to the release of better than expected HSBC flash manufacturing PMI out of China (8-month high), failed to weigh on fixed income products, with Bunds trading steady ahead of various coupon/redemption payments from a number of EU states. The move higher in Europe was driven by industrials and oil & gas sectors, with financials not too far behind in spite of bear steepening of the Euribor curve. The SMI index underperformed; with Credit Suisse trading lower by over 2% after the bank failed to meet analyst expectations and also announced plans to overhaul its interest rate trading business.

Yet again, the move higher in money market rates in China, which saw the seven-day repo jump to 4.5%, which is the highest level since national holidays, resulted in Chinese stocks underperforming its regional peers. However despite the latest up tick in money market rates, there is little evidence to suggest that the PBOC will announce measures to boost liquidity at this stage with analysts at Deutsche Bank noting that recent moves are not outside the historical range of volatility.

Looking elsewhere, the release of somewhat less than impressive Eurozone based PMIs managed to offset the positive sentiment which carried over from the overnight session and meant that EUR/USD traded steady, with EUR/GBP capped by the 200DMA line. Going forward, market participants will look forward to the release of the latest weekly jobs data, trade balance and another round of earnings from the US (Inc. MSFT, AMZN, F).

Asian Headlines

Chinese HSBC Flash Manufacturing PMI (Oct) M/M 50.9 vs. Exp. 50.4 (Prev. 50.2); New orders at 7 month high.

China’s central government will not introduce any bailout package or have large-scale stimulus policy as it did in 2008, according State Information Centre economist Fan Jianping.

EU & UK Headlines

ECB’s Mersch says new long-term LTRO might not be necessary, but all options are open.
Eurozone Manufacturing PMI (Sep F) M/M 51.3 vs. Exp. 51.4 (Prev. 51.1)
Eurozone Services PMI (Sep F) M/M 50.9 vs. Exp. 52.2 (Prev. 52.2)
German Manufacturing PMI (Oct A) M/M 51.5 vs. Exp. 51.4 (Prev. 51.1)
German Services PMI (Oct A) M/M 52.3 vs. Exp. 53.7 (Prev. 53.7)
French Manufacturing PMI (Oct P) M/M 49.4 vs. Exp. 50.1 (Prev. 49.8)
French Services PMI (Oct P) M/M 50.2 vs. Exp. 51.3 (Prev. 51.0)

Analysts at UBS expects coalition talks in Germany to now go on until about end-November. Although many topics on the list are contentious, analysts see a good chance that this deadline is met. If then a postal ballot among the c470,000 SPD members on the draft contract is positive, Mrs Merkel will be re-elected chancellor in the last Bundestag hearing before the winter holiday, and the new government will be in place.

Barclays month-end extension: Euro Agg +0.08y
Barclays month-end extension: Sterling Agg +0.02y

US Headlines

Sen. Jeann
e Shaheen, who is up for re-election in 2014, wrote to Obama on Tuesday and asked him to delay the enrollment deadline for the individual mandate.

“Given the existing problems with the website, I urge you to consider extending open enrollment beyond the current end date of March 31, 2014,” Shaheen wrote to the president. “Allowing extra time for consumers is critically important so they have the opportunity to become familiar with the website, survey their options and enroll.”

Analysts at Citi say the exact timing of the start of Fed tapering is highly uncertain, but now expect that tapering will be pushed back to March, with asset purchases not ending fully until late 2014.

Barclays month-end extension: Treasury +0.06y.

Equities

Stocks traded higher, with industrials and oil & gas sectors outperforming, as market participants reacted to the release of better than expected HSBC flash manufacturing PMI data out of China. However the SMI index in Switzerland underperformed, with Credit Suisse trading lower by over 2% after the bank failed to meet analyst expectations and also announced plans to overhaul its interest rate trading business.

FX

In spite of the risk on sentiment, supported by the release of better than expected HSBC flash manufacturing PMI from China, yet another rise in money market rates in China meant that USD/JPY failed to benefit from the positive sentiment. As a result, the pair traded steady, in close proximity to the 200DMA line.

RBA deputy governor Lowe said AUD may realign as mining boom wanes and the global economy recovers. Lowe added that weaker AUD since April is a welcome development, adding that the impact of low interest rates evident and has further to run. RBA’s Lowe further stated that inflation is only a touch higher, overall still looks pretty benign and commented that high exchange rate is the biggest structural headwind to the economy.

Commodities

Goldman Sachs said it expects gold prices to fall in 2014 driven by improving US economic data, rising real rates and the commencement of tapering of monetary stimulus by the Fed. The bank expects gold price to decline to USD 1,144 per ounce in 2014. Separately, gold seen by UBS analysts having more to gain on bank regulation.

Silver market seen in surplus next year, according to analysts at HSBC.

Nyrstar lowered forecast for zinc output from own mines to 265-280ktons from 300-400ktons previously.

An Iranian lawmaker has said that the nation has halted enriched uranium production up to 20%, therefore a few steps from which experts believe nuclear weapons can be produced. However, no other Iranian officials at this point in time have confirmed this news.

The US are said to be ‘very concerned’ about Turkeys potential missile deal with China and are holding discussions with Turkey, according to the US Ambassador.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sr_TfePy4gI/story01.htm Tyler Durden

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/y6sgSve9t-Q/story01.htm williambanzai7

The diplomatic farce in the aftermath of the most recent revelations that Obama had tapped not only Hollande‘s but Merkel’s cell phone as well, continued when moments ago Germany’s Foreign Ministry summoned the U.S. ambassador to explain if it was indeed true the NSA “may be spying” on Merkel, a ministry spokeswoman said. They used the word “may” loosely.  John B. Emerson, the newly appointed U.S. ambassador to Germany, will meet Foreign Minister Guido Westerwelle Thursday afternoon.

But while the latest diplomatic escalation will have zero impact whatsoever on either US spying intentions, mostly of US citizens let alone foreigners, or German-US relations, what is missing is that had this “scandal” happened four short months ago, the farce would have been truly complete as the summoned US Ambassador would be none other than former Goldman senior director and head of Goldman Germany, Philip Murphy, who alas stepped down in August. Had that been the case someone may have just put two and two together.

From the WSJ:

The German government’s position will be clearly presented to [Mr. Emerson],” the spokeswoman said. The U.S. Embassy referred questions back to the German Foreign Ministry.

 

Germany’s Parliamentary Control Committee, which oversees the intelligence services, will meet for an impromptu session on the cellphone scandal at 1200 GMT, said the head of the committee, Thomas Oppermann.

 

Ms. Merkel spoke by phone with President Barack Obama on Wednesday to discuss the claims that the U.S. monitored her communications. The chancellor made clear that surveillance among allies would be “fully unacceptable” and a “grave breach of trust,” her spokesman said in a statement released late Wednesday in Berlin.

 

The White House said Mr. Obama assured Ms. Merkel in the call that the U.S. “is not monitoring and will not monitor” her communications. “The United States greatly values our close cooperation with Germany on a broad range of shared security challenges,” White House spokesman Jay Carney said.

In other news, the German Parliament security committee meets today on merkel phone tap, German govt spokesman Seibert comments in text message. A text message which it goes without saying, was intercepted by the NSA.

And here is Angie herself showing just where the NSA’s bug was planted:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zv8_f_i6gyg/story01.htm Tyler Durden

The diplomatic farce in the aftermath of the most recent revelations that Obama had tapped not only Hollande‘s but Merkel’s cell phone as well, continued when moments ago Germany’s Foreign Ministry summoned the U.S. ambassador to explain if it was indeed true the NSA “may be spying” on Merkel, a ministry spokeswoman said. They used the word “may” loosely.  John B. Emerson, the newly appointed U.S. ambassador to Germany, will meet Foreign Minister Guido Westerwelle Thursday afternoon.

But while the latest diplomatic escalation will have zero impact whatsoever on either US spying intentions, mostly of US citizens let alone foreigners, or German-US relations, what is missing is that had this “scandal” happened four short months ago, the farce would have been truly complete as the summoned US Ambassador would be none other than former Goldman senior director and head of Goldman Germany, Philip Murphy, who alas stepped down in August. Had that been the case someone may have just put two and two together.

From the WSJ:

The German government’s position will be clearly presented to [Mr. Emerson],” the spokeswoman said. The U.S. Embassy referred questions back to the German Foreign Ministry.

 

Germany’s Parliamentary Control Committee, which oversees the intelligence services, will meet for an impromptu session on the cellphone scandal at 1200 GMT, said the head of the committee, Thomas Oppermann.

 

Ms. Merkel spoke by phone with President Barack Obama on Wednesday to discuss the claims that the U.S. monitored her communications. The chancellor made clear that surveillance among allies would be “fully unacceptable” and a “grave breach of trust,” her spokesman said in a statement released late Wednesday in Berlin.

 

The White House said Mr. Obama assured Ms. Merkel in the call that the U.S. “is not monitoring and will not monitor” her communications. “The United States greatly values our close cooperation with Germany on a broad range of shared security challenges,” White House spokesman Jay Carney said.

In other news, the German Parliament security committee meets today on merkel phone tap, German govt spokesman Seibert comments in text message. A text message which it goes without saying, was intercepted by the NSA.

And here is Angie herself showing just where the NSA’s bug was planted:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zv8_f_i6gyg/story01.htm Tyler Durden

The reason why the Chinese Shanghai Composite again can’t catch a bid (and why the Baltic Dry is sliding and will continue sliding from recent highs) is the same as the main event yesterday: the concerns that while the Fed punchbowl is and will continue to be filled beyond the point of overflowing, China – where inflation has once again taken a turn for the worse as it did this summer when after much repo pain the PBOC killed it early on in order to not repeat the scary episode of 2011 – may be actively engaging in monetary tightening. And like yesterday, when the PBOC refrained from adding liquidity via reverse repos, so today for a third straight auction the Chinese Central Bank refused to inject short-term funding into the system. The immediate result: China’s one-month Shibor rose 59 bps, most since June 25, to 5.4000%; three-month Shibor rose to 4.6876% from 4.6843% yesterday, while the key 7-Day Repo Rises 63 Bps to 4.68% hitting 5% prior, which was the biggest jump since July.

This move quickly prompted the sellside brigade to whip out the heavy “move along, all is well” artilery with the following opinions, via Bloomberg, on the repo rate surge:

Nomura

• Current rise in 7-day repo rate is a signal for monetary-policy tightening as Chinese government could have adjusted its liquidity management to offset seasonal factors and avoid rise in repo rate
• Doesn’t expect a repeat of liquidity squeeze seen in June, and tightening expected to be done in a gradual manner

Morgan Stanley

• Back end of RMB money market curve has remained calm, marking important difference to early summer event when China rates moved higher across maturity spectrum
• While combined action of pushing front-end rates and yuan higher suggests tighter monetary conditions, policy tightening action is moderate compared to spring experience

BOT-Mitsubishi UFJ

• China’s monetary tightening concerns ease, with 7-day repo rate still not at an unusually elevated level
• Investors appear more comfortable that repo rate surge is unlikely to signal a shift to tighter monetary policy; Chinese authorities appear comfortable with their current policy stance as inflation remains below 3.5% and real GDP growth is on course to modestly exceed their 7.5% target in 2013

The question is just how far will the PBOC go again this time: back in June it took several weeks of reverse repo auction lapses before the 7 day SHIBOR exploded well into the double digits, which in turn crippled the hot money flows. Will the PBOC simply repeat this exercise once again, and will it be as “successful” as it was last time, or will something finally break this time?

As for the other, less relevant news out of China, the flash HSBC printed at 50.9, between the final September 50.2, and flash reading of 51.2. Below is SocGen’s take:

The flash reading of the HSBC manufacturing PMI came in better than expected at 50.9 in October (Cons. 50.4; SG 50), in-between the final reading of 50.2 and the flash reading of 51.2 in September.

 

Simply compared with the final report for September, there were notable improvements with most key sub-indices. Output rose to a six-month high of 51 from 50.2; new orders were up by 0.8 point to 51.6, a seven-month high; purchases of inputs climbed above 50 for the first time in nine months; and employment increased to 49.9 from 48.8. Export orders were fairly resilient but did not increase much: 50.8 after 50.7. However, the two price indices – input and output prices – both retreated from the final readings in September, which points to slower improvement in the producer price index ahead.

 

Given the big difference between the flash and the final last month, it is somewhat difficult to judge the magnitude of the improvement, although the levels of these PMI readings suggest that the growth momentum of smaller manufacturing firms, at least, held up in October.

 

However, seeing growth stabilising, policymakers seem to be shifting their focus back to risk management. Beijing’s municipal government issued a seven-point property tightening policy on Wednesday. Aside from a reiteration of existing policy, the city plans to offer 70 thousand units of below-market-price apartments in the next two years, which is equivalent to nearly 30% of the housing sales in 2012. Other big cities are likely to follow Beijing’s lead to announce property tightening measures in the coming months. At the macro level, the People’s Bank of China withdrew nearly 100bn yuan from the interbank market in the past two weeks and as a result, the overnight repo rate is back above 4% and the 7-day rate close to 5%. The leadership still intends to delever the economy, which is the main reason behind our call that the secular deceleration trend is far from over.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jczlmQoQ0eI/story01.htm Tyler Durden

“The only true American value that is left… Buying Things…” There’s a reason for why education sucks and why it’s never going to be fixed, and that’s not the only hard hitting truths that George Carlin shares in this video…

 

h/t Simon Black of Sovereign Man blog

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5NIK-jPGYFI/story01.htm Tyler Durden

“The only true American value that is left… Buying Things…” There’s a reason for why education sucks and why it’s never going to be fixed, and that’s not the only hard hitting truths that George Carlin shares in this video…

 

h/t Simon Black of Sovereign Man blog

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5NIK-jPGYFI/story01.htm Tyler Durden