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Draghi, we have a problem. Just as Coeure ‘promised’ the ECB, according to The FT, began its bond-buying program this morning. However, peripheral sovereign bond-buying front-runners banking on the ECB greater fool to offload to are disappointed as they are go no easy money love. The initial program is covered-bond-buying (similar to US MBS, but a considerably smaller market) and the ECB will reveal how much it has bought each Monday afternoon (starting next week). Greek bonds are suffering the most with 5Y yields at cycle highs once again and prices at lows (vanquishing all of Friday’s gains).

 

As The FT reports,

The European Central Bank has started to buy covered bonds, launching its latest attempt to stave off a vicious bout of economic stagnation in the eurozone.

 

The purchases are the first in a bond-buying programme that is expected to see the ECB place billions of euros of covered bonds and asset-backed securities on its balance sheet over the next two years in an attempt to revive lending and growth across the region.

 

The ECB confirmed that the central bank had begun purchasing the assets on Monday. The purchases of asset-backed securities are expected to start later this year.

 

The central bank will reveal how much it has bought every Monday afternoon, starting next week.

And the disappointed sovereign front-runners continue to sell…

 

As Greece implodes back to higher yields and lower bond prices…

 

*  *  *

Of course, do not forget that the ECB has already changed its mind and changed it back on exactly which bonds are eligible for its buying program – as we detailed here.

*  *  *

None of this should be a surprise – remember what happened the last time the ECB bought sovereign bonds…

Spanish and Italian bond yields (upper pane) blew wider as the volume of ECB bond buying (lower pane) picked up…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1ptFK4n Tyler Durden

Submitted by Pater Tenebrarum of Acting-Man blog,

A Brief Look at the Technical Backdrop

We can actually not answer the question posed above with certainty. We don’t know for sure whether the recent market decline was a “warning shot” or merely a short term shake-out. In this we are in good company: the whole world doesn’t know.

However, our guess at this juncture is that the decline was of the “warning shot” variety, as it has violated long-standing uptrend support lines – something that the market has managed to avoid in previous corrections over the past three years. There are also fundamental reasons for thinking so, which we discuss briefly further below. However, based on fundamentals alone, it cannot be determined whether the stock market is already “ripe” for a larger degree decline, or whether its uptrend will resume in the short/medium term.

To be sure, the technical picture certainly conveys no certainties about the future either. However, should the market peak at a “typical” retracement level or at a previous lateral support level (thereby confirming its new status as resistance) and resume its decline from a lower high, yet another change in character will be recorded. In that case, the probability that a larger degree decline is underway would accordingly increase further.

Below are charts of the most important indexes showing Fibonacci retracement levels of the recent correction and lateral resistance levels. Although it is unknowable why the market often finds support or runs into resistance at Fibonacci retracement levels (there is certainly no logical reason for this), it has happened quite often in the past, so it is useful to be aware of them. Possibly it has become a self-fulfilling prophecy, because so many traders use technical analysis nowadays.

The first chart shows the S&P 500 Index (SPX), the NYSE Composite (NYA), the Russell 2000 (RUT) and the RUT-SPX ratio. What is noteworthy is that the Russell outperformed the large cap indexes from Monday to Thursday, thereby giving slight advance warning of an imminent short term low. However, this streak ended on Friday. Whether that was just a short term blip remains to be seen, but one should continue to keep an eye on the Russell’s relative performance. If the action on Friday was the start of another period of underperformance, it will represent a fresh warning signal. Note that large speculators have amassed a fairly large short position in Russell 2000 futures. In the short term, this may invite some additional short covering. However, speculators have largely been correct with their bets on Russell futures over the past decade (apart from a brief moment in the summer 2011 correction).

 

SPX, NYA, RUT and RUT-SPX ratio. Fibonacci retracement levels and nearby lateral resistance levels – click to enlarge.

 

The next chart repeats the above exercise for DJIA, Nasdaq and NDX.

 

DJIA, Nasdaq and NDX. All the major indexes have essentially bounced back to the 38% retracement level that is generally regarded as the minimum target for a rebound. 50% and 62% rebounds tend to be more common per experience, but there can be no assurance that either of them will be reached – click to enlarge.

 

Sentiment Data

Below are charts of a few sentiment data, mainly short term oriented ones (long term sentiment indicators are still at levels that are among the most extreme on record – specifically, mutual fund cash levels remain close to a record low, while margin debt is still close to a record high). The first three indicators are the equity only put-call ratio, the Rydex bull-bear ratio and Rydex bear assets:

 

The equity put-call ratio is in “signal-less” territory at the moment, but the Rydex bull-bear ratio is close to its year-to-date low, while bear assets are close to a year-to-date high. However, they remain at levels that have either only been recorded in 2014 and 2000 (bull-bear ratio) or solely this year (bear assets remain in a range that is the smallest in history) – click to enlarge.

 

Next we take a look at the Investor’s Intelligence survey. The percentage of bulls in this survey (which was taken on Wednesday, when the market reached its intra-week low) has not surprisingly declined quite a bit, but has happened with the bear percentage is quite remarkable. Just as Rydex bear assets remain within their lowest range on record, the bear percentage in the II poll has risen to a mere 17.3% – which used to be considered extremely low in the past.

 

The Investor’s Intelligence Poll. Why is the percentage of bears still so tiny? – click to enlarge.

 

The reason why we are bringing this up is that there has never been an important correction low with the bear percentage in the II-poll at a mere 17.3%. Normally we see it swell to between 40%-50% (see 2011) at major correction lows and it tends to at least approach 30% in minor corrections (see 2012). 17.3% is normally consistent with a market peak rather than a low.

What this and the extremely low level of bear assets in the Rydex funds is telling us is that practically no-one expects a big decline. Many investors and investment advisors seem to be allowing for a correction, and may even concede that it could become larger, but very few seem to be concerned about the potential for a really big downturn. This is a negative contrary indicator for the market.

 

Fundamental Backdrop

It is clear by now that the economies of the world ex the US aren’t performing particularly well. China’s economy is slowing noticeably after money supply growth fell to its lowest rate of change in many years, which has impaired the country’s real estate bubble. Since China’s authorities seem to be set on continuing to move the economy away from overbuilding and massive capital investment, no significant monetary stimulus measures should be expected in the near future.

What strikes us as remarkable about the situation in Europe is that all it took for the ongoing economic malaise to become a “triple dip” recession, was a slowdown in true money supply growth from a peak of 8.6% to a recent 6% year-on-year. This is noteworthy, because it is the first empirical confirmation of our long-held suspicion that the “threshold level” at which a slowdown in money supply growth unmasks various bubble activities in the economy has increased.

We suspect that something similar may apply to the US economy. While the broad US money supply TMS-2 most recently still grew at a historically high rate of approx. 7.6% y/y, this represents a massive slowdown from the approx. 16.5% to 17% peak levels of late 2009 and late 2011. At the same time, the economy remains quite imbalanced. The ratio of capital to consumer goods production has continued to climb and is currently just down a smidgen from a recent new all time high. If one compares capital and consumer goods production side-by-side, there is now an unprecedented gap between the two. We believe this is a result of the artificial suppression of interest rates by monetary pumping. Note in this context also that the huge issuance volumes in the junk bond market in recent years are by themselves already indicating that a lot of malinvestment is in train. These economic activities would under normal circumstance never get this much cheap funding. We can be quite certain that a lot of the associated investments will eventually turn out to have been misguided.

 

The ratio of capital goods (business equipment) to consumer goods production in the US has reached a new all time high recently – click to enlarge.

 

Only two times in history has capital goods production in the US exceeded consumer goods production (the red line shows consumer non-durables production, which has barely increased since the 2008 crisis) – click to enlarge.

 

Such economic statistics must of course always be taken with a grain of salt; for instance, monetary inflation is certainly not the only factor in the rising long term trend of US capital goods production exceeding consumer goods production. Partly it can be explained by the fact that a lot of consumer goods production has moved off-shore. Even so, there are still discernible fluctuations, which are mainly the result of boom-bust cycles induced by monetary pumping.

When interest rates are artificially suppressed by large additions to the money supply, more and more investment tends to move toward production processes temporally distant from the consumer stage. This is because under conditions of monetary pumping, price signals in the economy are falsified. Longer production processes that would normally be avoided because they are not in line with society-wide time preferences suddenly appear to be profitable, and it is only later revealed that either the real resources to complete them are lacking, or if they are completed, that they simply cannot be continued without incurring major losses once the price structure has normalized.

Usually this normalization in relative prices occurs once monetary policy becomes tighter – and this is indeed happening now (“tapering” of QE is tightening, even if the Federal Funds rate remains at rock bottom levels).

Lastly, given how poor the economic recovery has been overall, we can tentatively conclude that the economy’s pool of real funding has sustained severe damage in the preceding credit boom(s), and has undoubtedly been weakened further in the most recent one.

For the stock market (and other “risk asset” markets like junk bonds and also higher rated corporate bonds) this means that the fundamental backdrop that makes a major denouement possible is definitely in place now. However, we cannot state with certainty whether there is still room for the imbalances to grow even further. What we do know for sure is that the risks appear very high already.

 

Conclusion:

In the past few years the stock market has always recovered from corrections to make new highs, and we cannot be sure if the party is indeed over. However, both from a fundamental and technical perspective, the probability that it is over seems quite high. Should market internals and trend uniformity to the upside improve again, this assessment would obviously have to be revised. However, there are surely more than enough warning signs extant now and every financial asset bubble must end at some point.

As an aside, in spite of the heavy cooing by various Fed doves last week, we don’t think the present course toward tighter policy will be abandoned immediately. For the Fed to actually react, a lot more damage would likely have to occur in asset markets and economic data would have to become uniformly negative, which is so far not the case in the US. The danger that it will happen – i.e., that similar to Europe, the slowdown in money supply growth will render numerous bubble activities unprofitable – is however great.

via Zero Hedge http://ift.tt/1r0eIlD Tyler Durden

Euro Risk Due To Possible Return of Italy To Lira – Drachmas, Escudos, Pesetas and Punts?

The European status quo and EU elites are becoming increasingly concerned by popular calls in Italy for Italy to leave the European Monetary Union and the euro “as soon as possible” and return to the lira. 

Sharelynx.com 

Beppe Grillo, the leader of Italy’s Five Star Movement has shocked EU elites by launching of a non-binding consultative referendum on the matter which will be put before the parliament.
 
“We will collect half a million signatures in six months – a million signatures – and we will take our case to parliament, and this time thanks to our 150 legislators, they will have to talk to us” the Telegraph reports Grillo, the popular comedian and increasing popular politician as having said.
Italy’s Five Star Movement has thrown down the gauntlet and believes that a return to the lira may be the only way to end the economic depression and indeed save Italian sovereignty and indeed democracy.

Italian Lira

The movement, for whom 25% of Italians voted in last year’s general election, and a further 21% in this years European elections, appear to be upping the ante following the failure of the the EU bureaucracy and the ECB to acknowledge demands, last May, for the creation of Eurobonds to support the Euro and the abolition of the EU fiscal compact.

Both measures are staunchly opposed in Germany. They see the creation of Eurobonds as a means to make Germany responsible for the borrowing of struggling peripheral nations.

Sharelynx.com 

Peripheral nations such as Italy, Greece, Spain, Portugal and Ireland argue that they should not be made carry the entire burden of a problem caused, at least in part, by their participation in the monetary union. 

The customary method of devaluing a sovereign currency in order to make their exports more competitive is not open to them.

The fiscal compact requires that Eurozone states keep a balanced budget. According to Ambrose Evans Pritchard, the respected  International Business Editor of the Telegraph, the ”Fiscal Compact is economic insanity. It would force Italy to run massive fiscal surpluses for decades. These would cause an even deeper depression, pushing the debt ratio even higher, and would therefore be scientifically self-defeating.”

While it is still early to speculate on the outcome of this process, it is worth considering the implications of the fifth largest economy in Europe jettisoning the Euro.

At the height of the Euro crisis in early 2012 it looked possible that the entire monetary union project might rupture as the interest yielded on the bonds issued by the more vulnerable states began to soar. This has begun to happen again in recent days and Greek bonds have seen a new vicious sell off and 10 year yields have soared to nearly 9% (see below).

That is, investors in the bond markets had come to regard the bonds of Italy, Greece, Spain and others as high risk investments and required a much higher rate of return to compensate for this risk.

Sharelynx.com 

At that time, talk of the creation of a Eurobond was rife but the Germans held fast. It was looking as though these struggling countries would be forced to leave the euro until, at the eleventh hour, ECB governor Draghi stepped in, in July 2012, and announced that the ECB “is ready to do whatever it takes to preserve the euro.” 

This was interpreted to mean, among other things, that the ECB would buy bonds of struggling countries if necessary. Without Draghi having to actually do anything, risk was regarded as having been removed, at least temporarily, from the system and there has been a relative calm and confidence in the viability of the single currency since then.

But crisis seems to be surfacing again as seen in the sharp increase in volatility and decline in stock markets and certain bond markets in recent days and again today.

For many Italians, the slow grind of depression has tested their patience beyond endurance. Youth unemployment is at an incredible 46% and industrial production has fallen 25%. Many note that, since joining the euro, Italy – once an industrial powerhouse of Europe – has been unable to compete with Germany due to an overvalued currency.

In Greece the effects of Draghi’s pronouncements appear to have run their course and now actions may be required. The stock market has retraced around 50% of its gains since the “Draghi put.” It is down a sharp 23.65% this year alone.

There are increasing calls in Greece for a return to the drachma – polls show 33% in favour of a return to the Greek drachma at this time.

The fact that it is impossible for Greece to regain competitiveness and recover from depression while clinging to the euro is becoming increasingly evident. Prominent economists such as Nouriel Roubini, as well as investor George Soros have said as much and influential voices in Greece are now questioning the wisdom of clinging to the euro.

Even uber Keynesians and money printing advocates such as Paul Krugman have previously warned of the euro breaking up and Italy returning to the Italian lira and France returning the French franc.

In Ireland, dissatisfaction is not being expressed through euro skepticism. However, there is certainly a sense that enough austerity is enough. 

Up to 100,000 people took to the streets the weekend before last, to protest the introduction of water meters and privatisation of the water supply. This was a very large turnout by Irish standards and may be the start of the Irish public awakening from their recent apathetic slumber.

Sharelynx.com 

Criticism of the EU and ECB remains muted in Ireland. Although, the recent revelations by former central bank head, Patrick Honohan, regarding the manner in which the losses of reckless European banks were foisted onto the Irish taxpayer, is making even the most hardened euro phile somewhat skeptical. Not skeptical of the EU per se but of a policy of blindly accepting unfair and damaging policies foisted on Ireland.

In Spain and Portugal none of the structural problems that led to the crisis have been solved. And with data from Germany suggesting it is entering recession it may be only a matter of time before the eurozone is in crisis mode once again.

Debt levels remains very high throughout the EU.

In this environment, the ECB is in a much more difficult, some would say impossible position, as the panacea of ultra low interest rates can no longer be administered.

In the fifteen years since the introduction of the euro, we have had six years of austerity and monetary hardship.  If Europeans are faced with more of the same it is likely that disillusionment with the euro project will be inflamed. 

It is hard to envisage an orderly breakup of the EMU. Like Cortez – who burned all but one of his ships before marching inland to take on the Aztec empire – turning back was not factored into the architecture of the monetary union. 

Sharelynx.com 

There are now three real scenarios that could play out in the coming months. 

First, is that the German people, politicians and Bundesbank manage to prevent the ECB from embarking on the ‘bazooka’ of Euro QE. Given huge deflationary pressures, this would likely lead to deflation and an economic depression in Europe and globally.  

The second scenario is that Draghi and the ECB manage to overcome German opposition to euro QE or euro debt monetisation and printing. This would lead to the euro being debased and devalued and falling in value versus major currencies and especially gold.

The third scenario is that Italy or Greece opt to leave the monetary union and revert to their national currency. Their new liras and drachmas see sharp devaluations.

There is also the possibility that we see the deflation first and then the euro or national currency devaluations. It is worth remembering that gold is both a hedge against currency devaluation and inflation and also gold is a hedge against deflation.

Gold has no counterparty risk and cannot go default or go bankrupt , unlike companies and governments.

Conclusion
What should investors and savers in European countries do to protect themselves from the risk of currency debasement and devaluations?

The answer remains obvious and can be seen in the charts above. Gold is an important hedging instrument and financial insurance that will protect people from the potential return to liras, drachmas, escudos, pesetas and punts.

These are the types of scenarios where gold comes into it’s own as financial insurance and a store of value.

Get Breaking News and Updates On Gold and Markets Here

 

GOLDCORE MARKET UPDATE
Today’s AM fix was USD 1,241.00, EUR 972.65 and GBP 769.71 per ounce.
Friday’s AM fix was USD 1,238.00, EUR 966.89 and GBP 769.61 per ounce.
    
On Friday, gold fell $1.70 or 0.14% to $1,237.80 per ounce. Silver slipped $0.10 or 0.58% to $17.28 per ounce Friday. Gold had a second week of gains and rose 1.2% last week, while silver fell 0.40% after the selling on Friday pushed silver lower for the week. 

Gold in British Pounds – 2 Years (Thomson Reuters)

Gold in Singapore fell initially prior to rising in later trade prior to London opening when prices were capped again. Silver for Swiss storage or immediate delivery gained 0.5% to $17.40 an ounce. Spot platinum rose 1.1% to $1,272.75 an ounce after ending last week little changed. Palladium rose 0.6% to $761 an ounce, after falling 3.6% last week.

Gold has rallied almost 4% in the past two weeks and reached one month high of $1,249.30 last Wednesday. Futures climbed to $1,250.30 on October 15, the highest price September 11. 

The net long position in futures and options jumped 39% in the week to October 14, snapping the longest run of reductions since 2010, according to CFTC data.

While Asian shares rose today, European stocks fell again, following their longest streak of weekly losses in more than a year. Worse than estimated financial results from large companies added to concerns over the region’s recovery.

European equities have led a global rout that erased as much as $5.5 trillion from the value of shares worldwide as concern over the region’s economic recovery re-emerged, amid speculation that the ECB’s stimulus measures would not be enough to spur growth. 

Stocks pared losses today, due to rumours that the European Central Bank bought short dated French covered bonds.

Gold in Euros – 2 Years (Thomson Reuters)

Government bonds from Italy and Spain fell, extending a selloff from last week. Italy’s 10-year rate climbed another four basis points to 2.54% after increasing 17 basis points last week. Spain’s rose three basis points today to 2.19%.

The S&P 500 rallied on Friday, but it still locked in its fourth straight weekly decline. Its longest bearish run in over 3 years, as investors are becoming wary about the fragile global economy, another European debt crisis and the risks posed by the ebola virus and possible contagion.

See Essential Guide To Gold and Silver Storage In Switzerland

www.GoldCore.com

via Zero Hedge http://ift.tt/11Ww119 GoldCore

• Stick to tapering and rates pledge, says Boston Fed chief (FT)
• Turkey to let Iraqi Kurds reinforce Kobani as U.S. drops arms to defenders (Reuters)
• Obama makes rare campaign trail appearance, some leave early (Reuters)
• Japan GPIF to Boost Share Allocation to About 25%, Nikkei Says (BBG)… or three months of POMO
• Japan Stocks Surge on Report GPIF to Boost Local Shares (BBG)
• China Growth Seen Slowing Sharply Over Decade (WSJ)
• Russia, Ukraine Edge Closer to Natural-Gas Deal (WSJ)
• Leveraged Money Spurs Selloff as Record Treasuries Trade (BBG)
• After clashes, Hong Kong students, government stand their ground before talks (Reuters)
• Female cabinet members’ resignations undermine Abe’s recovery efforts in Japan (WaPo)
• Nigeria declared Ebola-free after containing virus (Reuters)
• Value Investors Hoarding Cash See Few Bargains After Rout (BBG)

 

Overnight Media Digest

WSJ

* Democrats, worried as polls show their chances of retaining control of the Senate dwindling, are plowing money into long-shot races in unexpected states. (http://on.wsj.com/1sEDmLA)

* In a blow to Prime Minister Shinzo Abe’s government, Japan’s industry minister announced her resignation on Monday over allegations of financial impropriety. Yuko Obuchi is the first cabinet minister to step down since Abe came to power in December 2012. (http://on.wsj.com/1CISk5O)

* The Fed is likely to end its bond-buying program this month even as market volatility and uncertainties about the global economy have rattled investors and led to some mixed messages from central-bank officials. (http://on.wsj.com/1CIRI07)

* An investor group from Hong Kong and Abu Dhabi is launching a bid to buy Reebok from Adidas in a move that would unwind a disappointing eight-year marriage of the sneaker makers. (http://on.wsj.com/1t1hDPt)

* Nearly six years after its near-death experience, Ally Financial Inc is nearly out from the U.S. government’s clutches, and taxpayers are earning a profit of more than $1 billion as the firm heads out the door. (http://on.wsj.com/1sEDmLA)

* A lawsuit against Walgreen Co paints a picture of the rough and tumble maneuverings inside a company grappling with disappointing earnings, activist hedge funds and a major deal. The suit by former Chief Financial Officer Wade Miquelon alleges Walgreen’s chief executive and a company board member defamed him in meetings with large shareholders that became the basis of a page-one article in The Wall Street Journal. (http://on.wsj.com/1wqJGJ7)

* Syngenta AG faces escalating legal battles over its sale of genetically engineered corn seeds that some farmers and agricultural companies say have roiled international grain markets this year. U.S. farmers in 11 states have sued Syngenta in federal courts during the past few weeks, alleging losses they say arose from the Swiss seed-and-chemical company’s move to sell biotech seeds before the corn was approved by Chinese authorities for import there. (http://on.wsj.com/1y8kp5I)

* Pension-fund managers across the United States are rethinking their investments in hedge funds in the wake of a retreat by the California Public Employees’ Retirement System. (http://on.wsj.com/10bZMdX)

* California is hoping to conjure some real-life jobs in the smoke-and-mirrors world of visual effects for movies and television shows-part of the state’s latest attempt to win back its most famous industry. (http://on.wsj.com/10bZMdX)

* When cold weather looms across the United States, natural-gas prices usually rise. This year they are falling, after a record production boom nearly replenished stockpiles left at their lowest since 2003 by last winter’s freeze. (http://on.wsj.com/1vzXaC7)

 

FT

European Commission President Jose Manuel Barroso has warned UK Prime Minister David Cameron that he will strive to write new EU freedom of movement rules for they are an integral part of Britain’s internal market. Barroso said a proposal from the British Government to cap on immigration from Europe would probably breach EU rules.

Britain’s financial watchdog aims to curb resource-heavy probe into alleged benchmark rigging. The financial regulator will issue a number of private warnings this year, what legal experts alert that it could lead to “enforcement by the back door”.

London-based bitcoin exchange, Coinfloor, is planning to strengthen its trade operations by raising money from investors in order to trade a wide range of currencies and launch a bitcoin fund.

Royal Bank of Scotland Group Plc, which is set to enter the peer-to-peer lending market, marks the latest sign of alternative finance getting a grip by moving into the mainstream.

 

NYT

* Yahoo is betting that Tumblr’s alliances with popular television shows like “The Voice” will help drive its growth. Still, 16 months after Yahoo Inc paid $1.1 billion for Tumblr, the company’s investors are questioning the success of the acquisition. Independent online research firm eMarketer says that while Tumblr’s growth rate is faster than that of competitors such as Pinterest or Instagram, its audience remains the smallest. (http://nyti.ms/1psBeTQ)

* On Sunday afternoon, IBM Corp issued a statement saying it would make an announcement on Monday. IBM did not provide any further details but analysts say the most likely possibility is that IBM’s long-running negotiations to shed its computer chip manufacturing operations have resulted in a deal. (http://nyti.ms/1rVokgL)

* The Washington Post continued its expansion over the weekend by adding a national edition. Local newspapers across the nation can now deliver with their Sunday papers a 24-page color tabloid edition of the Washington Post. Stephen P. Hills, president and general manager of the Post, said by email that local newspapers would sell the weekly edition “as an add-on to their subscriptions” and that it would include local advertising. (http://nyti.ms/1psCDd1)

* The Federal Reserve still plans to wrap up its bond-buying campaign at the end of October and remains likely to raise interest rates in mid-2015, although it now seems less likely to act sooner, analysts say. (http://nyti.ms/1wYTLuQ)

 

Canada

THE GLOBE AND MAIL

** Ottawa continued to auction off stockpiled medical supplies to the public, even after the World Health Organization requested the protective gear amid an Ebola outbreak raging in West Africa. (http://bit.ly/1wqV73A)

** Ontario is considering funding spots for graduate students from abroad, bowing to pressure from universities that say their global competitiveness is harmed because they have to turn away qualified foreign applicants due to lack of money. (http://bit.ly/1t1QZGv)

** TransCanada Corp’s C$11 billion Energy East pipeline project has run into another stumbling block in Quebec as public opposition mounts over a possible threat to the endangered beluga whales in the St Lawrence River. The Calgary-based pipeline company is still awaiting provincial government permission to continue its exploratory and drilling work on a planned export terminal at Cacoun. (http://bit.ly/1wqVGub)

NATIONAL POST

** Beginning next year, the Royal Canadian Mounted Police is aiming for the first time to enroll just as many women as men in its training academy in Regina. (http://bit.ly/1yQptic)

** Liberal leader Justin Trudeau said he would impose greater discipline on himself to avoid making off-the-cuff remarks that his opponents could use against him. In an interview with the Ottawa Citizen, Trudeau acknowledged that his own jokes had sometimes given political fodder to critics. (http://bit.ly/1ptdQph)

** Canada could generate up to C$32 billion more in exports over the next 10 years if it creates a yuan trading hub to do business in the world’s fastest growing currency, the Canadian Chamber of Commerce said in a new report. The chamber joined the call of some of Canada’s largest banks and financial institutions to promote Canada as a center for renminbi (yuan) trading. (http://bit.ly/1urKfhl)

 

China

SHANGHAI DAILY

– Violent clashes erupted in Hong Kong early on Sunday, despite the scheduling of two hours of talks on Monday between the government and students protest leaders.

CHINA DAILY

– The European Union has decided not to launch an anti-subsidies investigation into Chinese telecommunications equipment makers, helping avoid trade wars between the world’s two major economies.

– The annual Beijing Marathon was held on Sunday as planned despite the heavy smog, while competitors wearing masks triggered controversy.

PEOPLE’S DAILY

– The fourth Plenary Session of the 18th Central Committee of the ruling Communist Party of China, which will start on Monday, will open a new page in the improvement of the country’s legal system, this mouthpiece of the party said in an editorial.

CHINA SECURITIES JOURNAL

– The latest injection of liquidity into commercial banks by the People’s Bank of China signalled the government’s continued policy to conduct targeted easing to help curb the slowdown in China’s economy, economists said.

SHANGHAI SECURITIES NEWS

– Five companies face delisting within 30 days after the China Securities Regulatory Commission on Friday issued new rules to get loss-making companies or those in violation of regulatory practices to delist.

 

Britain

The Times

VIRGIN WAITS BEFORE SEEKING ITS MONEY Days after a rival bank was forced to cancel its stock market flotation, Virgin Money <IPO-VMH.L> has delayed its own 2 billion pounds ($3.22 billion) listing because of the recent collapse in equities worldwide. The lender said that it planned to price its shares “as soon as constructive market conditions allow”, but it would not complete a listing by the end of this month. (http://thetim.es/1sZRUH4) HEDGE FUNDS TO SNAP UP TESCO’S ASIA ASSETS Some of the world’s largest private equity groups are planning to make offers for Tesco’s 9 billion pound Asian business as the ailing supermarket group prepares to publish its delayed results next week. (http://thetim.es/1yPQ5jy)

The Guardian

BARROSO WARNS CAMERON THAT ARBITRARY MIGRATION CAP WOULD BREACH EU LAW UK Prime Minister David Cameron has suffered a blow to his EU reform plans after the outgoing president of the European commission, Jose Manuel Barroso, said an arbitrary cap on free movement within the EU would be incompatible with European law. (http://bit.ly/1yPTIGc) WATCHDOG TO PURSUE INQUIRY INTO SEX STING AGAINST MP BROOKS NEWMARK

The Independent Press Standards Organisation (Ipso) is to continue to investigate the Sunday Mirror for the sex sting carried out against MP Brooks Newmark even though the complaint against the newspaper has been dropped. This will be the first time that a press regulator has continued to investigate a complaint in the absence of a complainant. It follows new rules by the industry in the wake of the Leveson inquiry into the failures of newspaper publishers that followed the phone-hacking scandal. (http://bit.ly/1t3f1Sd)

The Telegraph

PRUDENTIAL BACKS 1 BLN STG TIDAL POWER PROJECT Prudential Plc is poised to become the key investor in a 1 billion pound tidal power station, securing the future of the infrastructure project. The FTSE 100 insurer, through its investment arm M&G, is to inject up to 100 million pounds in the Swansea Bay Tidal power station. The insurer will be the cornerstone investor in the project, which is scheduled to open in 2018. The backing from Prudential means the project is now likely to get the go ahead. (http://bit.ly/1nuphRN)

DELTA: AIRLINES WILL ALWAYS FIGHT FOR SPACE AT HEATHROW OVER GATWICK Delta Air Lines Inc, the US airlines giant, has warned that global carriers will continue to fight for space at Heathrow, even if Gatwick is selected for expansion. The carrier, which owns a 49 percent stake in Virgin Atlantic , said any solution to Britain’s looming aviation capacity crunch must involve some expansion at Heathrow because the business traveller market surrounding the west London hub is too valuable to surrender. (http://bit.ly/1rm1Jdc)

Sky News

BRITISH FIRMS CONSIDER PAYING FOR EGG FREEZING British companies have said they would consider following Apple Inc and Facebook Inc’s lead by paying for female staff to freeze their eggs. This week one of Europe’s largest fertility clinics is opening on the edge of the city of London. (http://bit.ly/1wqyOei)

HURRICANE GONZALO TRIGGERS UK GALES ALERT

Gusts of up to 70mph threaten to cause travel disruption and difficult driving conditions as the tail end of Hurricane Gonzalo hits Britain. Gales are expected to affect much of the country on Tuesday, leading the Met Office to issue a “yellow” weather warning for most parts, including the Midlands, northern England, Wales, Northern Ireland, and western Scotland. (http://bit.ly/11So6BZ)

 

 

Fly On The Wall Pre-Market Buzz

ECONOMIC REPORTS

No major domestic economic reports scheduled for today.

ANALYST RESEARCH

Upgrades

AIG (AIG) upgraded to Buy from Hold at Deutsche Bank
Align Technology (ALGN) upgraded to Buy from Neutral at Goldman
Align Technology (ALGN) upgraded to Outperform from Neutral at Credit Suisse
Alliance Holdings (ahgp) upgraded to Buy from Neutral at Citigroup
Allison Transmission (ALSN) upgraded to Outperform from Neutral at Credit Suisse
BNY Mellon (BK) upgraded to Neutral from Sell at Goldman
Brown Formanupgraded to Buy from Neutral at SunTrust
CONSOL (CNX) upgraded to Buy from Neutral at Citigroup
Comerica (CMA) upgraded to Market Perform from Underperform at Bernstein
Comerica (CMA) upgraded to Neutral from Reduce at Nomura
E-Trade (ETFC) upgraded to Conviction Buy from Buy at Goldman
Freeport McMoRan (FCX) upgraded to Neutral from Sell at Citigroup
Hospitality Properties (HPT) upgraded to Buy from Hold at Stifel
Intrawest Resorts (SNOW) upgraded to Buy from Neutral at Goldman
KeyCorp (KEY) upgraded to Buy from Hold at Deutsche Bank
Micron (MU) upgraded to Outperform from Sector Perform at Pacific Crest
Newmont Mining (NEM) upgraded to Buy from Neutral at Citigroup
News Corp. (NWSA) upgraded to Neutral from Underperform at Macquarie
Prosensa (RNA) upgraded to Overweight from Underweight at JPMorgan
Swift Transport (SWFT) upgraded to Buy from Neutral at Citigroup
TD Ameritrade (AMTD) upgraded to Buy from Neutral at Goldman
TerraForm Power (TERP) upgraded to Overweight from Neutral at JPMorgan
Unum Group (UNM) upgraded to Outperform from Market Perform at Raymond James
Western Alliance (WAL) upgraded to Outperform from Market Perform at Keefe Bruyette

Downgrades

Ambit Biosciences (AMBI) downgraded to Neutral from Buy at Citigroup
American Capital downgraded to Market Perform from Outperform at JMP Securities
Avista (AVA) downgraded to Sell from Neutral at UBS
BancFirst (BANF) downgraded to Market Perform from Outperform at Raymond James
CGG SA (CGG) downgraded to Sell from Neutral at Goldman
CareFusion (CFN) downgraded to Hold from Buy at Stifel
Cliffs Natural (CLF) downgraded to Sell from Neutral at Citigroup
DENTSPLY (XRAY) downgraded to Neutral from Buy at Goldman
Mead Johnson (MJN) downgraded to Hold from Buy at Deutsche Bank
PNC Financial (PNC) downgraded to Hold from Buy at Deutsche Bank
People’s United (PBCT) downgraded to Market Perform from Outperform at Raymond James
Preferred Bank (PFBC) downgraded to Outperform from Strong Buy at Raymond James
Primerica (PRI) downgraded to Market Perform from Outperform at Raymond James
Principal Financial (PFG) downgraded to Market Perform from Outperform at Raymond James
Seadrill (SDRL) downgraded to Neutral from Buy at Citigroup
Stillwater Mining (SWC) downgraded to Neutral from Overweight at JPMorgan
Westar Energy (WR) downgraded to Neutral from Buy at UBS

Initiations

CONE Midstream (CNNX) initiated with a Neutral at Citigroup
CONE Midstream (CNNX) initiated with a Neutral at Goldman
CONE Midstream (CNNX) initiated with a Neutral at JPMorgan
CONE Midstream (CNNX) initiated with an Outperform at Credit Suisse
CONE Midstream (CNNX) initiated with an Outperform at RBC Capital
CONE Midstream (CNNX) initiated with an Outperform at RW Baird
CONE Midstream (CNNX) initiated with an Outperform at Wells Fargo
CyberArk (CYBR) initiated with a Hold at Deutsche Bank
CyberArk (CYBR) initiated with a Neutral at JPMorgan
CyberArk (CYBR) initiated with an Equal Weight at Barclays
FNFV (FNFV) initiated with an Outperform at Keefe Bruyette
MannKind (MNKD) initiated with a Neutral at Goldman
Medley Management (mdly) initiated with a Buy at Deutsche Bank
Medley Management (mdly) initiated with an Outperform at Credit Suisse
Pall Corp. (PLL) initiated with an Outperform at Cowen
Sensata (ST) reinstated with an Overweight at Barclays
Vail Resorts (MTN) initiated with a Neutral at Goldman
Vitae Pharmaceuticals (VTAE) initiated with a Buy at Stifel
Vitae Pharmaceuticals (VTAE) initiated with an Outperform at BMO Capital
Vitae Pharmaceuticals (VTAE) initiated with an Outperform at JMP Securities

COMPANY NEWS

GLOBALFOUNDRIES to acquire IBM’s (IBM) microelectronics business for cash consideration of $1.5B that is expected to be paid to GLOBALFOUNDRIES by IBM over the next three years
Cleco (CNL) to be acquired by a group of North American long-term infrastructure investors led by Macquarie Infrastructure and Real Assets and British Columbia Investment Management Corporation, together with John Hancock Financial and other infrastructure investors for $55.37 per share in cash, or about $4.7B
Elliott Advisors expressed concerns over Family Dollar (FDO) merger, nominated slate of seven candidates for election to the Family Dollar board at the company’s annual meeting (DLTR, DG)
QEP Resources (QEP) sells midstream business to Tesoro Logistics (TLLP) for $2.5B (QEPM)
Honeywell (HON) sees $280B in business jet deliveries from 2014 to 2024

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Hasbro (HAS)

Philips (PHG) reports Q3 net income EUR (103M) vs. EUR 281M last year
SAP (SAP) cuts FY14 operating profit view to EUR 5.6B-EUR 5.8B from EUR 5.8B-EUR 6B
SAP (SAP) reports Q3 Non-IFRS EPS EUR 0.84 vs EUR 0.78 last year

NEWSPAPERS/WEBSITES

Yahoo (YHOO) to unveil turnaround, M&A strategy on Tuesday, WSJ reports
Tesco (TSCDY) accounting probe reveals staff’s ‘inappropriate behavior,’ Telegraph reports
Carnival (CCL) cruise passenger tests negative for Ebola, Reuters reports (TKMR, SRPT, BCRX, CMRX, NLNK)
Danone (DANOY) says not carrying out review on Mead Johnson (MJN) takeover, Reuters reports
CBS (CBS) could see 25% gain, Barron’s says
Schlumberger (SLB) is inexpensive and has room to rise, Barron’s says
Western Digital (WDC) looks like inexpensive big data play, Barron’s says
Post Holdings (POST) shares look attractive, Barron’s says

SYNDICATE

Adamis Pharmaceuticals (ADMP) files to sell 2.84M shares for holders
Community Financial (TCFC) files $75M mixed securities shelf
First Busey (BUSE) files $250M mixed securities shelf
Netlist (NLST) files $40M mixed securities shelf
Nuvilex files $50M mixed securities shelf
Sears (SHLD) files automatic mixed securities shelf

via Zero Hedge http://ift.tt/11Ww2lR Tyler Durden

Remember when three short months ago we revealed what was “the scariest chart in IBM’s history”, namely the one, showing IBM’s total debt to equity ratio, which has exploded and surpassed Lehman highs, as the company scrambled to issue more and more debt and use it to repurchase more and more stock?

With this chart, incidentally, we also explained why IBM’s ridiculous stock repurchasing strategy, which had seen $37.7 billion in stock buybacks since 2012, or more than the total debt issuance of $33.6 billion during the same period…

… could not continue and why, inevitably, IBM would have a massively disappointing quarter?

Well, that quarter just hit, when moments ago in an early press release, IBM reported abysmal adjusted EPS of only $3.68, a huge miss to the
$4.32 Wall Street expected, mostly a function of one simple thing: the
buyback “strategy” finally hit a brick wall.

Incidentally, we predicted just this in “The Great Stock Buyback Craze Is Finally Ending.” And sure enough, IBM’s Net Debt explosion has finally started to recede as even Big Blue is suddenly worried about a very blood red downgrade by the rating agencies.

Don’t worry though: there is some hope, if not much, now that the genie is out of the bottle that IBM will revert back to what it does best – financial gimmicks – quite soon:

At the end of September 2014, IBM had approximately $1.4 billion remaining from the current share repurchase authorization. The company expects to request an additional share repurchase authorization at the October 2014 board meeting.

Funny: so does everyone else.

* * *

Ok, fine, the financial engineering of IBM’s EPS is finally over, right on schedule, but what about its top line?

Well, it is here that the disaster really shifted into overdrive.

As the first chart below shows, Q3 revenue of $22.4 billion, a huge miss to the consensus $23.37 billion, was the lowest quarterly revenue since… Q1 2009!.

And, just as bad, on a Y/Y revenue change basis, the 5.6% drop was the biggest annual decline in revenue since the Lehman Q3 2009 comp, when sales plunged 6.9%.

Finally, now that the financial engineering no longer fools most of the people all of the time, IBM is finally forced to admit the truth:

• IBM SAYS NO LONGER SEES DELIVERING AT LEAST $20 EPS IN 2015
• IBM SEES 2014 OPERATING EPS DOWN 2-4%

Bottom line, at last check IBM shares were down over 8% premarket, an instant loss of $15 billion in market cap, and is dragging the broader indices far lower. Surely, the GIPF will be busy doubling down on its purchases of IBM stock in today’s session.

And now the time has come for companies to finally sit down and do the math on the IRR on all those hundreds of billions in stock buybacks.

via Zero Hedge http://ift.tt/1t36PjI Tyler Durden

And the overnight futures ramp started off so promising.

Now that Abenomics has officially failed (because even Goldman is providing reasons why it didn’t work), and Abe is being deserted by his ministers left and right, and not just any ministers but women – the same gender which he has been swearing recently he will do everything in his power to get better employment positions – the Nikkei news service disseminated yet another (no really) blurb about the only leverage Japan has, namely that the $1.2 trillion pension fund will boost its stock allocations from 12% to 25%. Putting this in context it means, that instead of holding $144 billion, the GPIF would own $300 billion, or… just about 3 months worth of Japanese POMO!

Alas, the Mrs Watanabe Kamikaze pilots are unable to do simple math and inversely plunged headfirst into headline, sending the TOPIX +4% overnight, just days after it re-entered bear market territory, because there clearly is nothing like “price stability” of an entire nation’s equity index trading like a pennystock on steroids. The headline pushed the USDJPY higher by about 70 pips from the Friday close to just under 107.5, and US equity futures up to just about 1900, before more somber and rational voices took over and picked up on Rosengren’s comment from last night that QE3 is ending, absent some dramatic change (like a 5% “plunge” in stocks?), and the USDJPY was back under 107 at last check, with futures back in freefall mode.

For whatever reason, futures have faded the entire move higher, and the huge IBM earnings miss which was announced moments ago will hardly help with the tone today. In fact, the only thing that may be helpful is for Rosengren to do a DieselBOOM and retract.

Overnight, the Nikkei 225 (+3.98%) posted its biggest 1-day gain in over a year, and back above the key 15000 level, exiting correction territory. The index underpinned by reports that the GPIF is working out plans to increase its portfolio allocation to domestic stocks to around 25% from 12%. However, despite a gap higher in European stock futures at the open, the domestic news in Japan failed to feed through and once cash equity trade resumed downward pressure soon was felt from heavyweights SAP (-4.2%) and Philips (-3.9%), both of which issued disappointing earnings reports. The FTSE MIB has outperformed its peers following confirmation this morning that the ECB has started its purchases of covered bonds.

Looking to the day ahead, we have German September PPI (expected at 0% MoM) and Italian August industrial orders and sales (with the former expected in at +0.2% MoM). On top of these data reads, the ECB’s Coeure is speaking today in London whilst the EU and Japan are holding trade talks in Brussels. We will also have earnings from SAP, Apple and IBM today as Q3 earnings season presses on.

Bulletin Headline Summary from Bloomberg and RanSquawk:

• Nikkei 225, finishes up 3.98%, supported by comments that the GPIF is working out plans to increase its portfolio allocation to domestic stocks to around 25% from 12%
• Focus on disappointing earnings updates from heavy weights SAP, Philips & IBM who are seen down 6% in pre-market
• Looking ahead direction will likely be dictated by the performance of Wall Street with a lack of scheduled macro events, Apple due to report after-market
• Treasuries decline, 10Y yields 2.21% after last week’s rally that saw yield slide as much as as much as 33.5bps to 1.862%, lowest since May 2013.
• Last week’s market gyrations sparked questions about whether bank regulations implemented after the 2008 financial crisis exacerbated price declines by limiting the ability of Wall Street banks to make markets
• ECB bought short-dated French covered bonds today, according to three people familiar with the matter, who asked not to be identified because they’re not authorized to speak about it
• The ECB’s unprecedented inspection of lenders’ books will help end a slump in lending that’s dogged southern Europe for years, said executives at some of the region’s largest banks
• France’s finance and economy ministers fly to Berlin today to try to convince their German counterparts of their plans to improve competitiveness and to press for more investment
• Fed policy makers are missing a key element as they assess the health of the labor market: data that includes whether those who are employed are overqualified for their job or would like to work more hours
• Russia’s foreign minister said his country will refuse to accept conditions to end sanctions after talks in Italy failed to produce a breakthrough over the truce in Ukraine’s conflict-ridden east
• Protest leaders will meet government officials tomorrow for talks to end more than three weeks of pro-democracy demonstrations, as Hong Kong’s top official blamed foreigners for adding to the foment
• Obama put aside closed-door fundraisers for a few hours and stepped onto the stages at rallies for allies running for governor in Illinois and Maryland, two heavily Democratic states
• Sovereign yields mixed, EU peripheral yields decline. Asian stocks surge. European stocks fall, U.S. equity-index futures higher. Brent crude lower, gold and copper gain

US Event Calendar:

• None scheduled
• Just 4 POMOs to go: 11:00am: Fed to purchase $1b-$1.25b notes in 2019-2020 sector

FIXED INCOME

Bund futures are seen higher into the North American cross over supported by weakness in European stocks after several disappointing earnings pre-market. However, trade has lacked conviction given the lack of scheduled calendar events today resulting in modest volumes (260k). In terms of fundamental news, the ECB has said it has started its purchases of covered bonds, this being confirmation of its previously announced programme, but has helped benefit the peripheral markets with spreads coming off their widest levels.

In terms of US headlines from the weekend:

Fed expected to maintain its steady-stance approach, according to Hilsenrath. (WSJ)

Fed’s Rosengren (non-voter, Dove) said he is open to adjustment to the overnight Repo facility as Fed approaches rate rise and can easily imagine conditions in which Fed would keep rates near zero until 2016. Rosengren also added that uncertainty could shift lift-off by 6 months. (RTRS) Fed’s Williams (non-voter, Dove) said his baseline forecast implies ending current asset-purchase program this month and rate increases in FFR target range starting sometime next year around mid-2015. (WSJ)

EQUITIES

Overnight, the Nikkei 225 (+3.98%) posted its biggest 1-day gain in over a year, and back above the key 15000 level, exiting correction territory. The index underpinned by reports that the GPIF is working out plans to increase its portfolio allocation to domestic stocks to around 25% from 12%. However, despite a gap higher in European stock futures at the open, the domestic news in Japan failed to feed through and once cash equity trade resumed downward pressure soon was felt from heavyweights SAP (-4.2%) and Philips (-3.9%), both of which issued disappointing earnings reports. The FTSE MIB has outperformed its peers following confirmation this morning that the ECB has started its purchases of covered bonds.

FX

FX markets have been relatively quiet as the market continues to take a breath from the high degree of volatility observed last week. GBP/USD has seen some slight out performance with comments from BoE’s Weale (soft hawk, dissenter) this weekend who said interest rates need to rise, and the BoE should focus on outlook for prices in 2 to 3 years, not current inflation rate. (Telegraph) Separately BoE’s Haldane (neutral) said that markets have probably overreacted and “what we have seen over the past week is financial markets catching up with the data”. (Observer)

COMMODITIES

The December WTI crude future contract is seen flat in the North American open as participants look ahead towards the OPEC meeting in Vienna scheduled on the 27th of October and any commentary in the intervening time period that may indicate whether or not the cartel will act to counter the recent slide in prices. In relevant news, Saudi Arabia’s oil exports have fallen to their lowest in three years in August while volumes used by local refineries rose to a record high. The country exported 6.663mln bpd, down from 6.989mln bpd in July. (RTRS)

Copper traded near a six-month low as weak fundamentals and the prospect of fresh supply continues to weigh on prices at the start of LME Week in London. Although China was said to have injected new liquidity in to the banking system over the weekend, markets keenly await tomorrow’s China industrial production and GDP numbers for growing evidence of a slowdown in the world’s biggest copper consumer.

Goldman Sachs sees downside risk to its 6-month copper forecast of USD 6,600/mt as seasonal factors, a once-in-twentyyear supply cycle and lack of China demand for financing deals could will result in a major LME stockpile build. The bank also maintains its 3-month and 12-month forecasts of USD 6,660/mt and USD 6,200/mt respectively. However, Goldman remains bullish on nickel over the next 6-12 months as high-grade nickel ore stocks to be drawn down. (BBG)

* * *

DB’s Jim Reid Concludes the Overnight Recap

So what have we learnt from a pretty fascinating and testing week for markets. Above all else we’ve been given a pretty big clue that global markets still need stimulus to maintain positive momentum. The mere suggestion by Bullard (a non-voter) on Thursday that instead of his previous preference for a Q1 hike, he might actually support an extension of QE, sent markets spiking higher in the last trading session and a half of the week. The S&P 500 and Stoxx 600 ended the week +3.6% and +5.4% above their Thursday intra-day lows with both indices ending the week just -1% lower.

The Fed was not the only central bank making dovish noises as the market was falling last week. In the UK, on Friday the BoE’s chief economist said on Friday that economic data since June had left him “gloomier” about the economy to the extent that he now thought that, “interest rates could remain lower for longer, certainly than I had expected three months ago.” The ECB’s Coeure said on Friday that the ECB Governing Council is, “ready to take additional non-conventional measures, if needed,” whilst also commenting that the ECB, “will start within the next days to purchase the assets that are foreseen under our new purchase programmes, with the objective to steer the balance sheet of the ECB to a higher level.” Easing noises were also coming out of China later in the week as Bloomberg News reported that the PBOC is set to inject around 200bn Yuan into some national and regional lenders to help them prepare for year-end liquidity needs according to, “a government official familiar with the matter.”

So with all this attention on central banks, as this week progresses markets will likely start focusing on the 2-day FOMC next Tuesday/Wednesday. Although there’s no planned press conference the statement will be heavily anticipated as will whether they decide to keep the last legs of QE going. I’d imagine most would think it unlikely that they will but much might depend on what transpires this week. If Bullard’s turnaround continues to reassure the market then maybe there is less need to heed his advice.

Wrapping up the market moves on Friday, credit markets reflected the positive sentiment as Main and Xover closed 5bps and 30bps tighter respectively in Europe whilst US credit indices saw similar moves. Bond markets in the European periphery recovered some of the widening earlier in the week, led by 10 year yields in Greece which rallied 84bps to close below 8%. Treasuries and Bunds were weaker both closing 4bps wider whilst the VIX also fell sharply, ending Friday down almost 10points at 22 from its Wednesday high.

Asian markets are following the stronger US tone from Friday. Bourses in Hong Kong, Sydney, Shanghai and Seoul are up +0.3%, +1%, +0.3% and +1.5% respectively. Whilst in Japan, equities have received a boost with the Topix rallying 3.7% following a report in the Japanese press over the weekend that the $1.2tn Government Pension Investment Fund plans to raise its allocation target for domestic shares to 25% from 12%.

Looking ahead, in lieu of the FOMC meeting next week, one of the biggest data points of the week is US CPI on Wednesday. As Joe Lavorgna pointed out to us, since late June the 5-year breakeven inflation rate has declined roughly 60 bps to 1.5% and now stands at the lowest level since September 2011 (1.4%). So the inflation number over the next few months could have a large impact on the Fed’s ability to raise rates over the next 12-18 months. We still think they’ll struggle to raise rates much before the next recession when they’ll be forced into QE again.

Looking to the day ahead, we have German September PPI (expected at 0% MoM) and Italian August industrial orders and sales (with the former expected in at +0.2% MoM). On top of these data reads, the ECB’s Coeure is speaking today in London whilst the EU and Japan are holding trade talks in Brussels. We will also have earnings from SAP, Apple and IBM today as Q3 earnings season presses on.

It looks set to be a busy rest of the week for economic data too. We will get Chinese investment and retail sales reads on Tuesday as well as Q3 GDP. Later on Tuesday we’ll also get US existing home sales data, whilst the EU, Ukraine and Russia are scheduled to hold gas talks in Brussels. On Wednesday we will get the BoE’s latest minutes and the aforementioned September CPI data for the US. Thursday is PMI day as we see the October PMI reads for Japan, China, France, Germany, the euro area and the US. Given current global growth concerns this numbers looks set to be even more important than usual, with particular focus on the European releases. Also on Thursday we will get French October manufacturing and business confidence, UK September retail sales, US jobless claims, the Chicago and Kansas Fed activity indices and EU leaders will meet for a summit. Finally on Friday we will get the latest China property price data, the November German GfK, Italian August retail sales and September wage growth, UK Q3 GDP, US new home sales data and French unemployment. The rating agencies are also set to release their latest rating reports on Germany, Italy and Spain. In terms of other major earnings reports this week, in Europe we have GSK, Credit Suisse, Daimler, Tesco, and BASF reporting whilst in the US Verizon, Boeing, Dow Chemical, AT&T, Caterpillar, Amazon, Microsoft, P&G and Ford are all releasing earnings.

Also on the agenda this week are the results of the ECB’s AQR and stress tests which are expected to cover around 130 banks, with the results of the probe set to be officially published on Sunday. The banks will get the results a few days earlier so it may be inevitable that leaks start to occur later in the week.

via Zero Hedge http://ift.tt/1CKvdaS Tyler Durden