Tag: news

If even George Soros is getting concerned and writing Op-Eds, then Putin must be truly winning.

Here are the highlights from what the Open Society founder has to say about the “existential” Russian threat in a just released Op-Ed:

Europe is facing a challenge from Russia to its very existence. Neither the European leaders nor their citizens are fully aware of this challenge or know how best to deal with it. I attribute this mainly to the fact that the European Union in general and the eurozone in particular lost their way after the financial crisis of 2008.

Getting warmer:

[Europe] fails to recognize that the Russian attack on Ukraine is indirectly an attack on the European Union and its principles of governance. It ought to be evident that it is inappropriate for a country, or association of countries, at war to pursue a policy of fiscal austerity as the European Union continues to do.

Even warmer:

All available resources ought to be put to work in the war effort even if that involves running up budget deficits

And hot, hot, hot:

[IMF] should provide an immediate cash injection of at least $20 billion, with a promise of more when needed. Ukraine’s partners should provide additional financing conditional on implementation of the IMF-supported program, at their own risk, in line with standard practice.

And there it is: the Russian “existential” war threat is, to Soros, nothing but an excuse to end the whole (f)austerity experiment (just don’t show Soros Europe’s latest record high debt load), and to return to its drunken sailor spending ways.

Ironically, this is precisely what we said would happen, only the globalist neo-cons were hoping the Ukraine civil war would become an all out war between Russia and Ukraine, thus unleashing the “spend your way to prosperity” Soroses of the world. For now, this plan has failed which is why ISIS was brought into the picture.

But it never hurts to try, eh George. And the one thing that is not mentioned is that the people who would gain the most from this latest IMF spending spree would be, you guessed it, billionaires like George Soros of course

* * *

From George Soros, first posted in the New York Reviews Of Books

Wake Up, Europe

Europe is facing a challenge from Russia to its very existence. Neither the European leaders nor their citizens are fully aware of this challenge or know how best to deal with it. I attribute this mainly to the fact that the European Union in general and the eurozone in particular lost their way after the financial crisis of 2008.

The fiscal rules that currently prevail in Europe have aroused a lot of popular resentment. Anti-Europe parties captured nearly 30 percent of the seats in the latest elections for the European Parliament but they had no realistic alternative to the EU to point to until recently. Now Russia is presenting an alternative that poses a fundamental challenge to the values and principles on which the European Union was originally founded. It is based on the use of force that manifests itself in repression at home and aggression abroad, as opposed to the rule of law. What is shocking is that Vladimir Putin’s Russia has proved to be in some ways superior to the European Union—more flexible and constantly springing surprises. That has given it a tactical advantage, at least in the near term.

Europe and the United States—each for its own reasons—are determined to avoid any direct military confrontation with Russia. Russia is taking advantage of their reluctance. Violating its treaty obligations, Russia has annexed Crimea and established separatist enclaves in eastern Ukraine. In August, when the recently installed government in Kiev threatened to win the low-level war in eastern Ukraine against separatist forces backed by Russia, President Putin invaded Ukraine with regular armed forces in violation of the Russian law that exempts conscripts from foreign service without their consent.

In seventy-two hours these forces destroyed several hundred of Ukraine’s armored vehicles, a substantial portion of its fighting force. According to General Wesley Clark, former NATO Supreme Allied Commander for Europe, the Russians used multiple launch rocket systems armed with cluster munitions and thermobaric warheads (an even more inhumane weapon that ought to be outlawed) with devastating effect.* The local militia from the Ukrainian city of Dnepropetrovsk suffered the brunt of the losses because they were communicating by cell phones and could thus easily be located and targeted by the Russians. President Putin has, so far, abided by a cease-fire agreement he concluded with Ukrainian President Petro Poroshenko on September 5, but Putin retains the choice to continue the cease-fire as long as he finds it advantageous or to resume a full-scale assault.

In September, President Poroshenko visited Washington where he received an enthusiastic welcome from a joint session of Congress. He asked for “both lethal and nonlethal” defensive weapons in his speech. However, President Obama refused his request for Javelin hand-held missiles that could be used against advancing tanks. Poroshenko was given radar, but what use is it without missiles? European countries are equally reluctant to provide military assistance to Ukraine, fearing Russian retaliation. The Washington visit gave President Poroshenko a façade of support with little substance behind it.

Equally disturbing has been the determination of official international leaders to withhold new financial commitments to Ukraine until after the October 26 election there (which will take place just after this issue goes to press). This has led to an avoidable pressure on Ukrainian currency reserves and raised the specter of a full-blown financial crisis in the country.

There is now pressure from donors, whether in Europe or the US, to “bail in” the bondholders of Ukrainian sovereign debt, i.e., for bondholders to take losses on their investments as a precondition for further official assistance to Ukraine that would put more taxpayers’ money at risk. That would be an egregious error. The Ukrainian government strenuously opposes the proposal because it would put Ukraine into a technical default that would make it practically impossible for the private sector to refinance its debt. Bailing in private creditors would save very little money and it would make Ukraine entirely dependent on the official donors.

To complicate matters, Russia is simultaneously dangling carrots and wielding sticks. It is offering—but failing to sign—a deal for gas supplies that would take care of Ukraine’s needs for the winter. At the same time Russia is trying to prevent the delivery of gas that Ukraine secured from the European market through Slovakia. Similarly, Russia is negotiating for the Organization for Security and Cooperation in Europe to monitor the borders while continuing to attack the Donetsk airport and the port city of Mariupol.

It is easy to foresee what lies ahead. Putin will await the results of the elections on October 26 and then offer Poroshenko the gas and other benefits he has been dangling on condition that he appoint a prime minister acceptable to Putin. That would exclude anybody associated with the victory of the forces that brought down the Viktor Yanukovych government by resisting it for months on the Maidan—Independence Square. I consider it highly unlikely that Poroshenko would accept such an offer. If he did, he would be disowned by the defenders of the Maidan; the resistance forces would then be revived.

Putin may then revert to the smaller victory that would still be within his reach: he could open by force a land route from Russia to Crimea and Transnistria before winter. Alternatively, he could simply sit back and await the economic and financial collapse of Ukraine. I suspect that he may be holding out the prospect of a grand bargain in which Russia would help the United States against ISIS—for instance by not supplying to Syria the S300 missiles it has promised, thus in effect preserving US air domination—and Russia would be allowed to have its way in the “near abroad,” as many of the nations adjoining Russia are called. What is worse, President Obama may accept such a deal.

That would be a tragic mistake, with far-reaching geopolitical consequences. Without underestimating the threat from ISIS, I would argue that preserving the independence of Ukraine should take precedence; without it, even the alliance against ISIS would fall apart. The collapse of Ukraine would be a tremendous loss for NATO, the European Union, and the United States. A victorious Russia would become much more influential within the EU and pose a potent threat to the Baltic states with their large ethnic Russian populations. Instead of supporting Ukraine, NATO would have to defend itself on its own soil. This would expose both the EU and the US to the danger they have been so eager to avoid: a direct military confrontation with Russia. The European Union would become even more divided and ungovernable. Why should the US and other NATO nations allow this to happen?

The argument that has prevailed in both Europe and the United States is that Putin is no Hitler; by giving him everything he can reasonably ask for, he can be prevented from resorting to further use of force. In the meantime, the sanctions against Russia—which include, for example, restrictions on business transactions, finance, and trade—will have their effect and in the long run Russia will have to retreat in order to earn some relief from them.

These are false hopes derived from a false argument with no factual evidence to support it. Putin has repeatedly resorted to force and he is liable to do so again unless he faces strong resistance. Even if it is possible that the hypothesis could turn out to be valid, it is extremely irresponsible not to prepare a Plan B.

There are two counterarguments that are less obvious but even more important. First, Western authorities have ignored the importance of what I call the “new Ukraine” that was born in the successful resistance on the Maidan. Many officials with a history of dealing with Ukraine have difficulty adjusting to the revolutionary change that has taken place there. The recently signed Association Agreement between the EU and Ukraine was originally negotiated with the Yanukovych government. This detailed road map now needs adjustment to a totally different situation. For instance, the road map calls for the gradual replacement and retraining of the judiciary over five years whereas the public is clamoring for immediate and radical renewal. As the new mayor of Kiev, Vitali Klitschko, put it, “If you put fresh cucumbers into a barrel of pickles, they will soon turn into pickles.”

Contrary to some widely circulated accounts, the resistance on the Maidan was led by the cream of civil society: young people, many of whom had studied abroad and refused to join either government or business on their return because they found both of them repugnant. (Nationalists and anti-Semitic extremists made up only a minority of the anti-Yanukovych protesters.) They are the leaders of the new Ukraine and they are adamantly opposed to a return of the “old Ukraine,” with its endemic corruption and ineffective government.

The new Ukraine has to contend with Russian aggression, bureaucratic resistance both at home and abroad, and confusion in the general population. Surprisingly, it has the support of many oligarchs, President Poroshenko foremost among them, and the population at large. There are of course profound differences in history, language, and outlook between the eastern and western parts of the country, but Ukraine is more united and more European-minded than ever before. That unity, however, is extremely fragile.

The new Ukraine has remained largely unrecognized because it took time before it could make its influence felt. It had practically no security forces at its disposal when it was born. The security forces of the old Ukraine were actively engaged in suppressing the Maidan rebellion and they were disoriented this summer when they had to take orders from a government formed by the supporters of the rebellion. No wonder that the new government was at first unable to put up an effective resistance to the establishment of the separatist enclaves in eastern Ukraine. It is all the more remarkable that President Poroshenko was able, within a few months of his election, to mount an attack that threatened to reclaim those enclaves.

To appreciate the merits of the new Ukraine you need to have had some personal experience with it. I can speak from personal experience although I must also confess to a bias in its favor. I established a foundation in Ukraine in 1990 even before the country became independent. Its board and staff are composed entirely of Ukrainians and it has deep roots in civil society. I visited the country often, especially in the early years, but not between 2004 and early 2014, when I returned to witness the birth of the new Ukraine.

I was immediately impressed by the tremendous improvement in maturity and expertise during that time both in my foundation and in civil society at large. Currently, civic and political engagement is probably higher than anywhere else in Europe. People have proven their willingness to sacrifice their lives for their country. These are the hidden strengths of the new Ukraine that have been overlooked by the West.

The other deficiency of the current European attitude toward Ukraine is that it fails to recognize that the Russian attack on Ukraine is indirectly an attack on the European Union and its principles of governance. It ought to be evident that it is inappropriate for a country, or association of countries, at war to pursue a policy of fiscal austerity as the European Union continues to do. All available resources ought to be put to work in the war effort even if that involves running up budget deficits. The fragility of the new Ukraine makes the ambivalence of the West all the more perilous. Not only the survival of the new Ukraine but the future of NATO and the European Union itself is at risk. In the absence of unified resistance it is unrealistic to expect that Putin will stop pushing beyond Ukraine when the division of Europe and its domination by Russia is in sight.

Having identified some of the shortcomings of the current approach, I will try to spell out the course that Europe ought to follow. Sanctions against Russia are necessary but they are a necessary evil. They have a depressive effect not only on Russia but also on the European economies, including Germany. This aggravates the recessionary and deflationary forces that are already at work. By contrast, assisting Ukraine in defending itself against Russian aggression would have a stimulative effect not only on Ukraine but also on Europe. That is the principle that ought to guide European assistance to Ukraine.

Germany, as the main advocate of fiscal austerity, needs to understand the internal contradiction involved. Chancellor Angela Merkel has behaved as a true European with regard to the threat posed by Russia. She has been the foremost advocate of sanctions on Russia, and she has been more willing to defy German public opinion and business interests on this than on any other issue. Only after the Malaysian civilian airliner was shot down in July did German public opinion catch up with her. Yet on fiscal austerity she has recently reaffirmed her allegiance to the orthodoxy of the Bundesbank—probably in response to the electoral inroads made by the Alternative for Germany, the anti-euro party. She does not seem to realize how inconsistent that is. She ought to be even more committed to helping Ukraine than to imposing sanctions on Russia.

The new Ukraine has the political will both to defend Europe against Russian aggression and to engage in radical structural reforms. To preserve and reinforce that will, Ukraine needs to receive adequate assistance from its supporters. Without it, the results will be disappointing and hope will turn into despair. Disenchantment already started to set in after Ukraine suffered a military defeat and did not receive the weapons it needs to defend itself.

It is high time for the members of the European Union to wake up and behave as countries indirectly at war. They are better off helping Ukraine to defend itself than having to fight for themselves. One way or another, the internal contradiction between being at war and remaining committed to fiscal austerity has to be eliminated. Where there is a will, there is a way.

Let me be specific. In its last progress report, issued in early September, the IMF estimated that in a worst-case scenario Ukraine would need additional support of $19 billion. Conditions have deteriorated further since then. After the Ukrainian elections the IMF will need to reassess its baseline forecast in consultation with the Ukrainian government. It should provide an immediate cash injection of at least $20 billion, with a promise of more when needed. Ukraine’s partners should provide additional financing conditional on implementation of the IMF-supported program, at their own risk, in line with standard practice.

The spending of borrowed funds is controlled by the agreement between the IMF and the Ukrainian government. Four billion dollars would go to make up the shortfall in Ukrainian payments to date; $2 billion would be assigned to repairing the coal mines in eastern Ukraine that remain under the control of the central government; and $2 billion would be earmarked for the purchase of additional gas for the winter. The rest would replenish the currency reserves of the central bank.

The new assistance package would include a debt exchange that would transform Ukraine’s hard currency Eurobond debt (which totals almost $18 billion) into long-term, less risky bonds. This would lighten Ukraine’s debt burden and bring down its risk premium. By participating in the exchange, bondholders would agree to accept a lower interest rate and wait longer to get their money back. The exchange would be voluntary and market-based so that it could not be mischaracterized as a default. Bondholders would participate willingly because the new long-term bonds would be guaranteed—but only partially—by the US or Europe, much as the US helped Latin America emerge from its debt crisis in the 1980s with so-called Brady bonds (named for US Treasury Secretary Nicholas Brady).

Such an exchange would have a few important benefits. One is that, over the next two or three critical years, the government could use considerably less of its scarce hard currency reserves to pay off bondholders. The money could be used for other urgent needs.

By trimming Ukraine debt payments in the next few years, the exchange would also reduce the chance of a sovereign default, discouraging capital flight and arresting the incipient run on the banks. This would make it easier to persuade owners of Ukraine’s banks (many of them foreign) to inject urgently needed new capital into them. The banks desperately need bigger capital cushions if Ukraine is to avoid a full-blown banking crisis, but shareholders know that a debt crisis could cause a banking crisis that wipes out their equity.

Finally, Ukraine would keep bondholders engaged rather than watch them cash out at 100 cents on the dollar as existing debt comes due in the next few years. This would make it easier for Ukraine to reenter the international bond markets once the crisis has passed. Under the current conditions it would be more practical and cost-efficient for the US and Europe not to use their own credit directly to guarantee part of Ukraine’s debt, but to employ intermediaries such as the European Bank for Reconstruction and Development or the World Bank and its subsidiaries.

The Ukrainian state-owned company Naftogaz is a black hole in the budget and a major source of corruption. Naftogaz currently sells gas to households for $47 per trillion cubic meters (TCM), for which it pays $380 per TCM. At present people cannot control the temperature in their apartments. A radical restructuring of Naftogaz’s entire system could reduce household consumption at least by half and totally eliminate Ukraine’s dependence on Russia for gas. That would involve charging households the market price for gas. The first step would be to install meters in apartments and the second to distribute a cash subsidy to needy households.

The will to make these reforms is strong both in the new management and in the incoming government but the task is extremely complicated (how do you define who is needy?) and the expertise is inadequate. The World Bank and its subsidiaries could sponsor a project development team that would bring together international and domestic experts to convert the existing political will into bankable projects. The initial cost would exceed $10 billion but it could be financed by project bonds issued by the European Investment Bank and it would produce very high returns.

It is also high time for the European Union to take a critical look at itself. There must be something wrong with the EU if Putin’s Russia can be so successful even in the short term. The bureaucracy of the EU no longer has a monopoly of power and it has little to be proud of. It should learn to be more united, flexible, and efficient. And Europeans themselves need to take a close look at the new Ukraine. That could help them recapture the original spirit that led to the creation of the European Union. The European Union would save itself by saving Ukraine.

—October 23, 2014

via Zero Hedge http://ift.tt/1xd5p5v Tyler Durden

via Zero Hedge http://ift.tt/1rm4PyK williambanzai7

Having reached multi-year lows last week, this week’s 17k rise to 283k (albeit noise), missing expectations for the first time in 6 weeks, is the biggest weekly rise in initial jobless claims since early August. Of course that’s irrelevant as all the time there is no hiring, there is no firing and the 4-week average (less noisy) dropped to its lowest since May 2000 – though we are sure Fed heads will not be reassured by this data as they focus attention on inflationary expectations (having ‘fixed’ employment). Continuing Claims dropped to cycle lows – the lowest since Dec 2000.

 

First miss in 6 weeks and biggest weekly rise in almost 3 months… but trend is in tact

 

And Continuing Claims plunges to near 15-year lows…

 

Certainly looks like time to unleash QE4 eh!!??

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1weYV9E Tyler Durden

Saudi Arabia, it appears, had enough of shooting itself in the foot for its American ‘partners’, and has admitted for the first time that it slashed supply in September. As Bloomberg reports, OPEC’s biggest producer cut supply to mkt by 328k b/d in September to 9.36m b/d, from 9.688m b/d in August, according to a person with knowledge of Saudi Arabia’s oil policy. Prices in September were flat admit this supply cut which suggests along with the build in EIA inventories seen yesterday that Saudi Arabia may have also been forced by global demand weakness to cut supply through October also.

 

It appears the Saudi supply cut in September offset any demand weakness as prices remained flat… which makes one wonder what the plunge in October represents (global demand weakness or a flip-flopping Saudi Arabia?)

 

The intrday reaction to the first public admission of supply cuts

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

Those who have been following Caterpillar actual top-line performance know that things for the industrial bellwether have been going from bad to worse, with not only retail sales declining across the globe, as documented here previously, but with the current stretch of declining global retail sales now longer than during what was seen during the Great Recession.

 

And yet, moments ago, CAT, which is a major DJIA component, just reported blowaway EPS of $1.72, far above the $1.35 expected. How did it achieve this stunning number which has pushed DJIA futures higher by almost half a percent?

Simple: first there was the usual exclusions, with “restructuring costs” adding back some $0.09 to the bottom line number.

But the punchline was this: “In addition to the profit improvement, we have a strong balance sheet and through the first nine months of the year, we’ve had good cash flow.  So far this year, we’ve returned value to our stockholders by repurchasing $4.2 billion of Caterpillar stock and raising our quarterly dividend by 17 percent,” Oberhelman said.”

And here is just how the surge in buyback activity looked in comparison to Q3 2013…

… and since the start of 2013:

One can only assume the collapse in CapEx spending is because the company is so enthused about its global growth prospects.

But wait, there’s more, because another reason why the stock is soaring is because CAT actually boosted EPS guidance despite the ongoing retail sales collapse. To be sure, CAT did not boost revenue guidance, and “The company now expects 2014 sales and revenues to be about $55 billion, the middle of the previous outlook range of $54 to $56 billion.”

What it did do was say that “with 2014 sales and revenues of about $55 billion, the revised profit outlook is $6.00 per share, or $6.50 per share excluding $450 million of restructuring costs.  That is an improvement from the previous profit outlook of $5.75 per share, or $6.20 per share excluding $400 million of restructuring costs at the mid-point of the previous sales and revenues outlook range of $54 to $56 billion. The improvement in the profit outlook is a result of our continuing focus on execution and cost control, favorable currency impacts and a favorable tax item that occurred in the third quarter.”

Actually no. The improvement is the result of a surge in current and upcoming buybacks.

Recall: “As previously announced, the company repurchased $2.5 billion of Caterpillar common stock during the third quarter of 2014.  This repurchase is part of the $10 billion stock repurchase authorization approved by the Board of Directors in the first quarter of 2014.“

In other words, expect about $2.5 billion of stock buybacks per quarter, reducing the company’s outstanding share count, and thus boosting its Earnings Per Share number.

What else did CAT say:

Despite cautious optimism for improved global economic growth, significant risks and uncertainties remain that could temper growth in 2015.  Political conflicts and social unrest continue to disrupt economic activity in several regions, in particular, the Commonwealth of Independent States, Africa and the Middle East.  The Chinese government’s push for structural reform is slowing growth, and the ongoing uncertainty around the direction and timing of U.S. fiscal and monetary policy actions may temper business confidence.  As a result, our preliminary outlook for 2015 expects sales and revenues to be flat to slightly up from 2014.

 

“At this point, our view of 2015 sales and revenues isn’t significantly different than 2014.  Our order backlog was up a little in the third quarter and was slightly higher than at this point last year.  We‘re hopeful that economic growth will improve in 2015, but are mindful of the uncertainties and risks.  We have continued to improve operational execution, and if we see more positive economic momentum, we believe we’re well-positioned to respond and deliver for our customers and stockholders,” Oberhelman added.

So much more buybacks. Because in the new normal, if you can’t grow, you just buy your way to growth. On margin.

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

• Canada PM vows crackdown after capital shocked by fatal attacks (Reuters)
• Canada Gunman Was Convert to Islam With Criminal Record (BBG)
• Some U.S. hospitals weigh withholding care to Ebola patients (Reuters)
• But… Great rotation… Bond funds stock up on Treasuries in prep for market shock (Reuters)
• Saudis at War With Islamic State Confront Echo of Kingdom’s Past (BBG)
• EU’s Top Banker Warns of Rule Fixation ‘Going Beyond Reason (BBG)
• U.S.-led air strikes killed 521 fighters, 32 civilians in Syria (Reuters)
• Growing Kurdish Unity Helps West, Worries Turkey (WSJ)
• Don’t Be Distracted by the Pass Rate in ECB’s Bank Exams (BBG)
• Hedge Funds Add to Venture-Capital Bounty (WSJ)
• Speed-of-Light Trading Grows in Europe With McKay Network (BBG)
• Buffett copycats risk a pounding as Berkshire portfolio suffers (Reuters)
• Shale Boom’s Allure to Wall Street Tested by Bear Market (BBG)
• Athletes took fake classes at University of North Carolina (Reuters)
• Credit Suisse Profit More Than Doubles as Trading Rises (BBG)
• In Ebola-Afflicted Liberia, Orphanages Make a Tragic Comeback (WSJ)
• UBS Hunts for Millionaires in Hong Kong’s Nine Dragons (BBG)
• Alabama man gets $1,000 in police settlement, his lawyers get $459,000 (Reuters)
• Tesco Chairman to Leave as Accounting Missteps Hit Profit (BBG)
• Lloyds Said to Cut 9,000 Jobs Amid Online Banking Shift (BBG)

 

Overnight Media Digest

WSJ

* The Manhattan U.S. attorney’s office is investigating whether air bag supplier Takata Corp made misleading statements about the safety of its air bags to U.S. regulators, people familiar with the matter said. The probe is at a preliminary stage and could end without any charges filed. (http://on.wsj.com/1uHz4kS)

* Several executives at JPMorgan Chase & Co in New York were warned of potential problems related to the bank’s hiring practices in China more than a year before the program came under scrutiny by the U.S. government, according to people familiar with the matter and documents reviewed by The Wall Street Journal. (http://on.wsj.com/1thx2ew)

* Maverick Capital Ltd, one of the oldest hedge-fund firms, plans to launch its first venture-capital fund on Jan. 1, according to investors, with hopes of raising $400 million to take stakes in young companies. (http://on.wsj.com/1wdmbEQ)

* Procter & Gamble Co shook up its senior management ranks, naming new leaders for key businesses and narrowing the field of potential successors to Chief Executive A.G. Lafley. Melanie Healey, currently P&G’s head of its North America business and once considered a potential successor to Lafley, will leave the company next year, according to an internal memo distributed to employees Wednesday. (http://on.wsj.com/1xafS1J)

* The asset-management industry suffered a setback when regulators rejected a proposal by BlackRock Inc to launch an exchange-traded fund, that would have kept its holdings hidden from investors. The product, known as a “nontransparent ETF”, is a key part of the industry’s attempt to broaden its customer base beyond traditional index-tracking investments by selling more funds that are actively managed. (http://on.wsj.com/1owlQuN)

* Luxottica Group SpA named Procter & Gamble Co veteran Adil Mehboob-Khan as a co-chief executive on Wednesday, seeking to put an end to a month of turmoil caused by the return of founder Leonardo Del Vecchio to active management of the world’s largest eyewear group. (http://on.wsj.com/1wqjV9S)

* Nickel prices have sunk to their lowest level since March, as slowing economies in Europe and China rattle investors, while a financing scandal in China has prompted companies to dump tons of nickel and other metals on the market. (http://on.wsj.com/1FGujRd)

 

FT

Lloyds Banking Group Plc is set to unveil its plans to cut 9,000 jobs next week, which comprise 10 percent of its workforce. The move is part of its new three-year strategy to create digital, marketing and customer development function to focus on developing new and improved products. The Co-operative Bank’s failed bid for hundreds of Lloyds Banking Group Plc’s branches should have been stopped much earlier, a group of British Members of Parliaments said. A report from the Treasury committee, published on Thursday, blames the failed deal on the Co-operative Bank’s managers, its regulators and auditors at KPMG.

GlaxoSmithKline Plc has launched a multi-billion-pound restructuring plan that includes a potential floatation of its HIV drugs unit. The move is aimed at winning back shareholder support after the drugmaker faced corruption allegations and faltering sales. HSBC Holdings Plc and a unit of Allied Irish Banks Plc have been publicly reprimanded by Britain’s antitrust watchdog for breaching competition rules by pushing small and medium-sized companies to open current accounts when taking out loans.

 

NYT

* Financial regulators, trying to increase access to home loans, have relaxed many rules designed to prevent a repeat of the 2008 subprime crisis. Some six years after the financial crisis, thousands of apparently creditworthy borrowers are being shut out of the housing market because they cannot get mortgages. (http://nyti.ms/1wujbCA)

* Capitol Hill increased pressure on the Japanese auto supplier Takata Corp and federal safety regulators on Wednesday as two senators demanded wider recalls to fix millions of defective airbags and a House committee said it wanted a fuller accounting of how the recalls were handled. (http://nyti.ms/1sRObdr)

* Concern over the safety of guardrails manufactured by Trinity Industries Inc spread further on Wednesday as two more states said they would ban the use of the company’s ET-Plus rail head, which is thought to have a dangerous defect. (http://nyti.ms/ZOpELY)

* Total SA, the French oil giant, on Wednesday appointed two insiders to lead the company, moving swiftly to replace Christophe de Margerie, its chairman and chief executive, who died Monday in an airplane accident. (http://nyti.ms/1rr2DoM)

* A group of Washington investors with high-level political backing and a $5 billion commitment from the Japanese government is pressing ahead with its vision of a high-speed train that could whisk passengers between New York and Washington in about an hour. (http://nyti.ms/1owbued)

 

China

– Several commercial banks are expected to issue preference shares within one month and the Agricultural Bank of China LTd could be among the first batch, industry insiders said.

– Seven regulators, including the National Development Reform Commission and Ministry of Industry and Information Techonology of China, have launched a plan to promote wider adoption of green vehicles for public transportation. The regulations will promote the use of a total of 20,222 green buses from 2014 to 2015 in the Beijing-Tianjin-Hebei Region.

CHINA DAILY

– China will launch an experimental spacecraft this weekend to test a technology seen as crucial to a future lunar probe that will return to Earth with soil samples.

– Guangdong province plans to tighten rules preventing officials who have spouses and children living overseas from attaining leadership positions in government, public institutions and state-backed enterprises.

SHANGHAI SECURITIES NEWS

– China’s insurance regulator has released new investment rules which include barring insurance firms from putting more than 30 percent of their total assets in related companies.

SHANGHAI DAILY

U.S. insurer American International Group plans to expand its operations from China’s coastal areas to the inland and it looks to support overseas expansion of Chinese companies.

Britain

The Times

RATES HELD DUE TO FEARS OVER GLOBAL ECONOMY

The downturn in Europe is posing a risk to Britain’s economic recovery, which appears already to have begun to slow, the Bank of England has warned. The minutes to this month’s rate setting meeting said there were signs in the UK “of a slight loss in momentum” and that “the pace of growth was beginning to ease”. Pessimism about the global economic outlook was blamed, drawing particular attention to the Eurozone. (http://thetim.es/12dB3GR)

EE SPEEDS AHEAD AS EUROPE’S LARGEST 4G NETWORK

EE has laid claim to the title of Europe’s largest 4G network after the launch of the iPhone 6 pushed its customer base for the faster network well beyond the 5 million mark. (http://thetim.es/1CXjW7e) HOMEBASE TO CLOSE A QUARTER OF ITS STORES Roughly a quarter of Homebase Group Ltd stores are to close by 2018, leading to job losses, as the DIY chain undergoes a three-year turnaround plan. Home Retail Group Plc, which owns Homebase and Argos, said that after conducting a review of the DIY chain, it had found “several challenges”, including inconsistent standards across its stores, as well as larges stores with low sales. (http://thetim.es/1t5t0pW)

The Guardian

GLAXOSMITHKLINE TO FLOAT MINORITY STAKE OF HIV TREATMENT COMPANY

The British drugs group GlaxoSmithKline Plc is planning to create a new 15 billion pound ($24.07 billion) FTSE 100 company by spinning out a subsidiary focused on treating HIV. The pharmaceuticals group is looking to float a minority stake of ViiV Healthcare, a division in which it owns a near-80 percent stake and which raked in pre-tax profits of 880 millio pound last year. US rival Pfizer Inc and Japanese drugs group Shionogi & Co Ltd hold the rest of the shares. (http://bit.ly/10oOK5h)

The Telegraph

LLOYDS TO CUT AROUND 9,000 JOBS

Lloyds Banking Group Plc plans to cut around 9,000 jobs, roughly a tenth of its entire workforce, over the next three years as the taxpayer-backed bank’s staff are replaced by digital technology. (http://bit.ly/ZHg4KC)

EE CHIEF POURS COLD WATER ON RENEWED TALK OF 10 BLN STG SELL-OFF

Olaf Swantee, chief executive of EE, has said there is “no rush” to sell off Britain’s biggest mobile operator after it emerged its owners, the French and German telecoms giants Orange and Deutsche Telekom, had reopened talks on the future of the business. (http://bit.ly/1s9xQgd)

The Independent

BRITISH COMPETITION WATCHDOG BLASTS BANKS OVER SME LOANS

The British competition watchdog has criticised a group of banks, including HSBC Holdings Plc, Barclays Plc and Royal Bank of Scotland Group Plc, over its small and medium-sized businesses lending practices. The Competition and Markets Authority said HSBC and the Northern Irish bank, First Trust, had breached an undertaking not to force businesses to open a current account with them when they offered them a loan. (http://ind.pn/ZHhAMU)

 

Fly On The Wall Pre-Market Buzz

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Jobless claims for week of October 18 at 8:30–consensus 285K
FHFA house price index for August 9:00–consensus up 0.3%
Markit manufacturing PMI for October at 9:45–consensus 57.0
Leading indicators for September at 10:00–consensus up 0.6%

ANALYST RESEARCH

Upgrades

AbbVie (ABBV) resumed with an Overweight from Neutral at JPMorgan
Boston Scientific (BSX) upgraded to Neutral from Sell at Goldman
Dow Chemical (DOW) upgraded to Buy from Hold at Deutsche Bank
Fifth Third Bancorp (FITB) upgraded to Buy from Neutral at Goldman
GlaxoSmithKline (GSK) upgraded to Overweight from Equal Weight at Barclays
Tesoro Logistics (TLLP) upgraded to Outperform from Sector Perform at RBC Capital
Tractor Supply (TSCO) upgraded to Strong Buy from Market Perform at Raymond James
UniFirst (UNF) upgraded to Outperform from Neutral at RW Baird
Union Bankshares (UBSH) upgraded to Outperform from Neutral at RW Baird
Yelp (YELP) upgraded to Buy from Neutral at B. Riley

Downgrades

3D Systems (DDD) downgraded to Hold from Buy at Brean Capital
Angie’s List (ANGI) downgraded to Hold from Buy at Wunderlich
Angie’s List (ANGI) downgraded to Neutral from Overweight at Piper Jaffray
Angie’s List (ANGI) downgraded to Underperform from Market Perform at Raymond James
Avalon Rare Metals (AVL) downgraded to Neutral from Buy at Citigroup
Axiall (AXLL) downgraded to Market Perform from Outperform at Cowen
BB&T (BBT) downgraded to Neutral from Buy at Goldman
Boeing (BA) downgraded to Neutral from Outperform at Credit Suisse
Boulder Brands (BDBD) downgraded to Hold from Buy at Canaccord
Citrix (CTXS) downgraded to Neutral from Buy at BofA/Merrill
DTS, Inc. (DTSI) downgraded to Underweight from Neutral at JPMorgan
GulfMark Offshore (GLF) downgraded to Market Perform from Outperform at Cowen
ICON plc (ICLR) downgraded to Equal Weight from Overweight at First Analysis
IPC The Hospitalist Co. (IPCM) downgraded to Market Perform at Wells Fargo
Mercer (MERC) downgraded to Neutral from Outperform at Credit Suisse
Owens Corning (OC) downgraded to Neutral from Overweight at JPMorgan
Regency Energy Partners (RGP) downgraded to Neutral from Buy at BofA/Merrill
The Medicines Co. (MDCO) downgraded to Neutral from Buy at BofA/Merrill
Tupperware Brands (TUP) downgraded to Neutral from Overweight at JPMorgan
Union Bankshares (UBSH) downgraded at RW Baird
VOC Energy Trust (VOC) downgraded to Underperform from Sector Perform at RBC Capital
Yelp (YELP) downgraded to Hold from Buy at Stifel

Initiations

Alibaba (BABA) initiated with an Overweight at Barclays
Elephant Talk (ETAK) initiated with a Speculative Buy at Taglich
Endo (ENDP) initiated with a Buy at Guggenheim
Gulfport Energy (GPOR) initiated with a Positive at Susquehanna
Netgear (NTGR) initiated with a Neutral at Buckingham
Southwestern Energy (SWN) initiated with a Positive at Susquehanna
Whiting Petroleum (WLL) initiated with a Positive at Susquehanna

COMPANY NEWS

EU to boost Ebola research with EUR 24.4M (PPHM, TKMR, SRPT, BCRX, CMRX, NLNK, LAKE, APT, SMED)
Rio Tinto (RIO) extended tenure of CEO Sam Walsh, CFO Chris Lynch
CarMax (KMX) raised share repurchase authorization by $2B
Select Comfort (SCSSS) increased share repurchase authorization to $250M
GFI Group (GFIG) special committee to review tender offer from BGC Partners (BGCP). The Board has not changed its recommendation with respect to, and continues to support, the pending transaction with CME Group (CME)
AT&T (T) reported Q3 net increase in total wireless subscribers of 2M

EARNINGS

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

Alexion (ALXN), Arctic Cat (ACAT), Cenovus Energy (CVE), NorthWestern (NWE), Carter’s (CRI), Lazard (LAZ), WESCO (WCC), Cash America (CSH), Cenovus Energy (CVE), Silicon Laboratories (SLAB), Cabot Microelectronics (CCMP), Dunkin’ Brands (DNKN), JAKKS Pacific (JAKK), Check Point (CHKP), Volaris (VLRS), Logitech (LOGI), Northfield Bancorp (NFBK), Farmers Capital Bank (FFKT), NXP Semiconductors (NXPI), Euronet (EEFT), Core Laboratories (CLB), IBERIABANK (IBKC), Core Laboratories (CLB), MSA Safety (MSA), Teradyne (TER), Pacific Continental (PCBK), Old Second Bancorp (OSBC), Albemarle (ALB), TAL International (TAL), Mellanox (MLNX), Orrstown Financial (ORRF), TriState Capital (TSC), Oritani Financial (ORIT), MKS Instruments (MKSI), O’Reilly Automotive (ORLY), NVE Corp. (NVEC), CoreLogic (CLGX), Exponent (EXPO), Tyler Technologies (TYL), Deltic Timber (DEL), Equifax (EFX), ServiceNow (NOW), Infinera (INFN), Financial Institutions (FISI), Marketo (MKTO), Fortinet (FTNT), Leggett & Platt (LEG), Graco (GGG), Lam Research (LRCX), Everest Re (RE), Covanta (CVA), Digimarc (DMRC), C.R. Bard (BCR), 8×8, Inc. (EGHT), Clearwater Paper (CLW), Polycom (PLCM), Monarch Casino (MCRI), Citrix (CTXS), Yelp (YELP), Skechers (SKX), Open Text (OTEX), CA Technologies (CA), Sangamo (SGMO), Select Comfort (SCSS), Tractor Supply (TSCO), Banner Corp. (BANR), Acacia Research (ACTG)

Companies that missed consensus earnings expectations include:

AT&T (T), Invacare (IVC), Eli Lilly (LLY), Alamos Gold (AGI), Patterson-UTI (PTEN), Diamond Offshore (DO), Colfax (CFX), Potash (POT), Sequans (SQNS), Proto Labs (PRLB), Quality Systems (QSII), Precision Castparts (PCP), Weatherford (WFT), Sun Bancorp (SNBC), Horizon Bancorp (HBNC), Susquehanna (SUSQ), United Stationers (USTR), Morningstar (MORN), Horace Mann (HMN), Allied World (AWH), A. Schulman (SHLM), Varian Medical (VAR), United Financial (UBNK), Cheesecake Factory (CAKE), IPC The Hospitalist Co. (IPCM), Torchmark (TMK), Plexus (PLXS), La Quinta (LQ), Allegiant Travel (ALGT)

Companies that matched consensus earnings expectations include:

United Community Banks (UCBI), QCR Holdings (QCRH), CVB Financial (CVBF), Sallie Mae (SLM), Interface (TILE)

NEWSPAPERS/WEBSITES

Procter & Gamble (PG) narrows potential CEO successors to four, WSJ reports
PetSmart (PETM) attracts interest from KKR (KKR), NY Post reports
Credit Suisse (CS) head detects no tangible worries in forex probe, Reuters says
Apple (AAPL) to increase Apple-brand retail stores in China to 40, WSJ reports
Government relaxing mortgage regulations, NY Times says (BAC, C, GS, JPM, MS, USB, WFC)

SYNDICATE

AmSurg (AMSG) files to sell common stock for holders
FreeSeas (FREE) files to sell 17.5M shares for holders
New Mountain Finance (NMFC) files to sell 5M shares of common stock
Pointer Telocation (PNTR) files to sell 2.33M ordinary shares for holders
WidePoint (WYY) files automatic common stock shelf

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

Perhaps the most interesting question from late yesterday is just how did the Chinese PMI rebound from 50.4 to 50.2, when the bulk of its most important forward-looking components, New Orders, Output, New Export Orders… 

… posted a material deterioration? When asked, not even Markit could provide an explanation that seemed remotely reasonable so we can only assume the headline was goalseeked purely for the kneejerk reaction benefit of various algos that only focus on the headline and nothing else. Luckily, we didn’t have much time to ponder this quandary as a few hours later we got the latest batch of Eurozone PMI numbers.

The reason the PMI “soft-data” surveys are relevant, if mostly again for the benefit of kneejerk reacting algos, is because as Deutsche Bank said, “These real time numbers are clearly going to be important at the moment with many fearing an inflexion point in the global data.” So what better way to instill some confidence in a triple-dipping Europe, if only on actual “hard” data, than by providing cherry-picked, seasonally adjusted survey responses.

And sure enough, Markit did not disappoint when following an ugly French PMI number (because as we have shown before, France is long gone from anyone’s idea of Europe’s core), which printed at 47.3 for Manufacturing, down from 48.8 in September, and below the 48.5 expected, and a Services print of 48.1, down from 48.4 and below the 48.3 expected, we got yet another magical turnaround in Europe, driven once again by Germany, whose Mfg PMI printed at a whopping 51.8, far above the contractionary 49.5 which was expected, and up from the 49.9 contraction Markit reported a month ago. This was the highest reading since July 2014, and up from the 51.7 reported a year ago. It was high enough to offset the tiny decline in the Services PMI which dipped from 55.7 to 54.8 below the 55 expected. This in turn helped boost the composite European PMI to 52.2, from 52.0, above the 51.1 expected, driven by a rise in manufacturing from 50.3 to 50.7, below the contractionary print of 49.9 expected, even as Services remained flat at 52.4.

Ironically, just like in China, new orders were flat but the forward-looking orders-to-stock difference fell 0.8pt! But as long as the headline number picked up all is well, and judging by the violent reaction in USDJPY and futures, Markit achieved its mission for the day.

This is how Goldman summarized Europe’s Deus Ex PMI data:

The Euro area composite PMI edged up by 0.2pt to 52.2 in October, against consensus expectations of a contraction (Cons: 51.5, GS: 51.2). The rebound in the composite PMI was driven by a 0.4pt increase in the manufacturing component to 50.7, while the services PMI was flat at 52.4. The level of PMIs continues to point to small positive growth rates in Q3 and now early Q4.

 

1. The manufacturing PMI increased marginally from 50.3 to 50.7 in October, after five months of consecutive declines. The services PMI was unchanged at 52.4 (Exhibit 1). The consensus expectation was for small declines in both the manufacturing and services PMI.

 

2. The breakdown generally showed a mixed picture. New orders were flat but the forward-looking orders-to-stock difference fell 0.8pt. Other subcomponents of the manufacturing PMI were more positive, with output rising 0.9pt and employment rising 0.5pt. The forward-looking subcomponents (which are not part of the headline services PMI figure) were weak: ‘business expectations’ fell 3.1pt and ‘incoming new business’ fell 1.1pt.

 

3. In addition to the Euro area aggregate, Flash PMIs were released for Germany and France. The German composite PMI edged up 0.2pt to 54.3, against consensus expectations of a 0.5pt decline (Cons: 53.6). This was driven by a strong 1.9pt increase in the German manufacturing PMI (while the German services PMI eased 0.9pt). In contrast, the French composite PMI printed at 48.0 in September, 0.4pt below the previous month’s reading, against consensus expectations of a small increase (Cons: 48.7). The French PMI decline was driven by weakness in the manufacturing sector. In a separate release, the French INSEE manufacturing confidence survey sent a diverging signal, posting a small 1pt increase to 97. Overall, the German/French PMI gap widened by 0.6pt in October and is now greater than 6pt (Exhibit 2).

So what does the latest PMI print imply for GDP? Goldman said that “based on historical correlations, a reading of 52.2 is associated with +0.2%qoq GDP growth. In the same vein, our CAI points to similar growth in October (+0.2%), in line with the September reading.” Well, it is positive…

But the best indication of just how ridiculous the headline prints were came from Markit itself, which clearly did not believe the numbers it had reported: This is what Markit’s Chris Williamson said:

“The Eurozone PMI rose in October but anyone just watching the headline number misses the darker picture painted by the survey’s other indices, which show  the region teetering on the verge of another downturn. 

 

“Growth of new orders slowed closer to stagnation and backlogs of work fell at a faster rate, causing employment to be cut for the first time in nearly a year.

 

“Business confidence in the service sector also slid to the lowest for over a year and prices charged fell at the fastest rate since the height of the global financial crisis, adding to an increasingly downbeat assessment of business conditions. 

 

“While the survey suggests the euro area has so far avoided a slide back into recession this year, a renewed downturn cannot be ruled out. Growth is so anaemic that increasing numbers of companies are being forced into laying off staff and slashing prices in an attempt to cut costs and boost sales through discounting.”

The message is clear: we needed a stronger headline number, but weak enough to prompt the ECB to do something. Good luck.

In other news, Asian equities traded on a sombre note following suit from yesterday’s negative Wall Street close, led by weakness in energy shares amid a sharp drop in oil prices. Hang Seng (-0.3%) and Shanghai Comp (-1.0%) traded lower, shrugging off a better than expected Chinese HSBC manufacturing PMI (50.4 vs. Exp. 50.2), as new orders and output (50.7 vs. Prev. 51.3) metrics fell, the latter printing at the lowest since May’14. The Nikkei 225 (-0.37%) finished the session in the red in a continuation of the negative US close while also tracking the move lower in USD/JPY overnight.

Despite opening in the red in a continuation of the move lower seen on Wall St. and overnight, European equities enter the North American open in a sea of green with the exception of the FTSE 100. Despite a lower than expected French PMI release, with all three components falling short of expectations which initially placed further weight on equities, attention instead turned towards the strong German and Eurozone PMI releases. With the data points going against the grain of recent lacklustre Eurozone releases, European equities emerged back into the green with the DAX moving higher by a total of 150 points, which subsequently dragged fixed income products lower as Bunds moved back below 150.50. On a sector specific basis, telecommunication names lead the way following strong earnings updates from the likes of Nokia, Orange and Tele2.

Looking forward, we will get initial jobless claims (expected in at 281k vs +264k previously). We will also get earnings reports from the likes of Credit Suisse, Daimler and Tesco in Europe, and American Airlines, GM, Microsoft and Amazon in the US.

Bulletin Headline Summary from Bloomberg and RanSquawk

• European equities shrug off lacklustre French and Chinese PMI releases as attention turns towards better than expected German and Eurozone figures, while the FTSE 100 remains firmly in the red.
• UK retail sales (Ex Auto M/M -0.3% vs. Exp. 0.0%), provide a further source of concern for the UK economy, which subsequently saw GBP/USD briefly break below 1.6000.
• Looking ahead, attention turns towards the release of the weekly US jobs data, US manufacturing PMI as well as a host of large cap. US earnings including the likes of Microsoft, Comcast, Caterpillar, Eli Lilly, GM and Amazon.
• Treasuries steady, 10Y and 30Y yields at highest since early October as market focus begins shifting to next week’s Fed meeting.
• Fed is slated to complete $10b of UST purchases in October next week; those will be the final events of QE3 “if the FOMC decides to end its current program of asset purchases at the next meeting,” schedule says
• A China manufacturing gauge rose in October, with HSBC/Markit’s PMI rising to 50.4 from 50.2 the previous month
• Markit’s euro-area manufacturing PMI rose to 50.7 in October from 50.3; in Germany, factories rebounded from a slump in September while in France both services and manufacturing shrank more than forecast
• ECB has purchased more than EU800m of covered bonds in the first three days of its asset-purchase program, according to estimates from three traders
• U.K. retail sales fell 0.3% in September, more than forecst, with clothing and footwear sales dropping 7.8%, the most since April 2012, the Office for National Statistics said in London today
• Terror reached Canada this week when a “radicalized” convert to Islam on Monday ran down and killed a soldier with a car and a gunman yesterday invaded the capital and murdered a soldier at a war memorial before entering Ottawa’s parliament building where he was shot to death
• The attack may add fuel to a more than decade-long debate over the country’s participation in U.S.-led military operations in the Middle East that has divided political parties and public opinio
• Heightened U.S. regulatory scrutiny of leveraged lending is leading the biggest banks to back away from funding some takeovers financed by debt, creating an opportunity for smaller competitors to step in
• Goldman Sachs Asset Management used the recent selloff in U.S. high yield bonds as an opportunity to add to its position, betting that a strengthening of the world’s largest economy will keep defaults low
• Sovereign yields mostly higher. Asian stocks decline, European stocks mixed, U.S. equity-index futures gain. Brent crude gains, copper and gold fall

US Event Calendar

• 8:30am: Chicago Fed National Activity Index, Sept., est. 0.15 (prior -0.21)
• 8:30am: Initial Jobless Claims, Oct. 18, est. 281k (prior 264k)
  • Continuing Claims, Oct. 11, est. 2.380m (prior 2.389m)
• 9:00am: FHFA House Price Index m/m, Aug., est. 0.3% (prior 0.1%)
• 9:45am: Markit US Manufacturing PMI, Oct. preliminary, est. 57 (prior 57.5)
• 9:45am: Bloomberg Consumer Comfort, Oct. 19 (prior 36.2)
• 10:00am: Leading Index, Sept., est. 0.7% (prior 0.2%)
• 11:00am: Kansas City Fed Manufacturing Activity, Oct., est. 6 (prior 6)
• 11:00am: Fed to purchase $1.35b-$1.65b notes in 2020-2021 sector
• 11:00am: U.S. to announce plans to auction 2Y/5Y/7Y notes, 2Y FRN
• 1:00pm: U.S. to auction $7b 30Y TIPS in reopening

ASIA

JGBs traded up 3 ticks at 146.32 after tracking overnight gains in USTs and further underpinned by earlier weakness in Japanese stocks. Asian equities traded on a sombre note following suit from yesterday’s negative Wall Street close, led by weakness in energy shares amid a sharp drop in oil prices. Hang Seng (-0.3%) and Shanghai Comp (-1.0%) traded lower, shrugging off a better than expected Chinese HSBC manufacturing PMI (50.4 vs. Exp. 50.2), as new orders and output (50.7 vs. Prev. 51.3) metrics fell, the latter printing at the lowest since May’14. The Nikkei 225 (-0.37%) finished the session in the red in a continuation of the negative US close while also tracking the move lower in USD/JPY overnight.

FIXED INCOME & EQUITIES

Despite opening in the red in a continuation of the move lower seen on Wall St. and overnight, European equities enter the North American open in a sea of green with the exception of the FTSE 100. Despite a lower than expected French PMI release, with all three components falling short of expectations which initially placed further weight on equities, attention instead turned towards the strong German and Eurozone PMI releases. With the data points going against the grain of recent lacklustre Eurozone releases, European equities emerged back into the green with the DAX moving higher by a total of 150 points, which subsequently dragged fixed income products lower as Bunds moved back below 150.50. On a sector specific basis, telecommunication names lead the way following strong earnings updates from the likes of Nokia, Orange and Tele2.

However, to the downside, the FTSE 100 has underperformed throughout the session following Tesco’s (down as much as 7%) pre-market update which revealed a larger than expected overstatement and scrapping of guidance. Further negative sentiment from the UK has also stemmed from UK property seller Foxtons (-15%) who noted a fall in home sales volumes.

Prelim Barclays month end extension for US treasuries +0.08yrs, Pan Euro Agg month-end extensions +0.08yrs (Prev. +0.09yrs), 12-month average +0.08yrs, Prelim Barclays Sterling Agg month-end extensions +0.06yrs

FX

In FX markets, USD/JPY has been one of the notable movers during the European session after breaking above Monday’s and last week’s highs alongside the move lower in fixed income products as USD/JPY gained amid favourable interest differential flows. The move to the upside was also exacerbated by the pair tripping stops through 107.55 and talk of leveraged names on the bid which also saw the pair break above an option expiry at 107.50. Elsewhere, GBP/USD has been weighed on by a disappointing UK retail sales release (Ex Auto M/M -0.3% vs. Exp. 0.0%), which saw the pair briefly break below 1.6000 to the downside, with the ONS noting that the fall in clothing sales volumes is the biggest since April 2012. NZD was a notable mover overnight, with NZD/USD falling just shy of a point, weighed on by NZ CPI (1.0% vs. Exp. 1.2%) which printed at its lowest level since June 2013, prompting several large investment banks incl. Barclays and JP Morgan, to push back their forecast for next RBNZ OCR hike.

COMMODITIES

Heading into the North American open, WTI and Brent crude futures trade in relatively neutral territory in a modest recovery of yesterday’s DoE inspired losses which saw WTI hit its lowest level in two years, with a lack of further newsflow to dictate price action. Precious metals markets also trade in relatively neutral territory, while residing modestly below yesterday’s lows. However, copper prices have been provided some reprieve following the Chinese manufacturing PMI release, although the move to the upside was capped as attention turned towards the output component of the release. Elsewhere, Anglo American have lifted their annual output targets for all its major commodities with the exception of platinum.

* * *

DB’s Jim Reid concludes the overnight recap

Kicking off this morning we’ve already had the flash PMI print in China with the 50.4 reading modestly better than market expectations of 50.2. The benign reading has done little to spark any sort of confidence in investors following the GDP print earlier in the week with the local benchmark unchanged at the time of writing. We’ve also had PMI out of Japan which surprised to the upside, the 52.8 print up from 51.7 in September. Markets in the region are trading mostly in the red. The Nikkei, Hang-Seng and Kospi are -0.2%, -0.3% and -0.3% down whilst in credit iTraxx Asia is +3 bps wider.

These real time numbers are clearly going to be important at the moment with many fearing an inflexion point in the global data. To help take stock this morning we resurrect our simple grid looking at the relationship between manufacturing PMIs and equity markets (using YoY % change). This analysis looks at the correlation between these two variables across a selection of key countries over time and which allows us create a simple regression to see whether any anomalies currently exist.

Of our 8 sample countries plus the Eurozone, seven currently see manufacturing PMIs between 48.8 (France) and 51.7 (Japan). Depending on the country and based on these numbers, our regressions suggest that these equity markets should generally be flat to slightly higher than 12 months ago. In actuality they’re slightly lower suggesting that the market expects PMIs to edge lower or that equities are cheap if they don’t. The biggest exception is in the US where the last PMI was 56.6 which corresponds to a 18% YoY gain rather than the 11% we actually have. So the US is ‘cheap’ if the PMIs don’t decline from current levels.

We’ve used this measure less over the last couple of years as central banks have increasingly distorted the relationship between fundamentals and valuation. However all-in-all the relationship looks pretty appropriate over the last 12 months. Those equity markets with lower domestic PMIs are generally the ones struggling and vice-versa. The results are in today’s pdf but remember that we always treated this as a back of the envelope guide to value rather than anything more substantial. So treat with care.

In terms of what’s expected today, for Europe consensus is for a general slip in the PMI’s, with the euro area composite, manufacturing and services PMI dropping to 49.9, 52 and 51.5 respectively. We will also get the French and German numbers with the market expecting the French composite to rise slightly (to 48.7) whilst the German composite is expected to fall (to 53.6).

Across the Atlantic, we will get the flash US manufacturing PMI which is also expected to fall (though only to 57).

Market performance was mixed yesterday as European assets were broadly up whilst the US struggled. In Europe, the Stoxx 600 closed the day up +0.7% whilst in credit markets iTraxx Xover tightened -6bps. EURUSD fell another -0.4%. After opening on a positive note US equities closed at their lows. The index fell -0.7% whilst credit also struggled with CDX HY widening by +5bps. Markets drifted lower as energy stocks took suffered following an EIA report that showed the US is stockpiling oil reserves at surprisingly high levels for this time of year, WTI sold off 1.9% to trade at close to $80/barrel. The weaker sentiment was further compounded by a mixed batch of earnings releases. Towards the end of the day, news emerged in Ottawa that a gunman had fatally killed a soldier and opened fired inside the parliament building close to the Canadian PM Stephen Harper (BBC). We are yet to hear any confirmation on whether or not the gunman was linked to a known terrorist group.

The main macro release of the day was US September CPI which came in slightly ahead of expectations at +0.1% MoM and +1.7% YoY, whilst estimates of core CPI came in at expectation (at +0.1% MoM and +1.7% YoY). In other headlines the ECB entered its third day of asset purchases, with Bloomberg News reporting it had bought Spanish covered bonds, whilst it is also adding to its French and Portuguese purchases. In other ECB news, ECB Governing Council Member Luc Coene said in an interview with Les Echos that “we could extend our interventions to other instruments such as corporate bonds” but that, “there is no concrete proposal on the table at the moment.” In the UK, the BoE minutes saw sterling fall as the minutes showed that whilst 2 members continued to vote for a hike, 7 opted to keep rates unchanged, with the minutes also showing increased pessimism about the global economy.

Looking ahead European banks will this evening get the results from the AQR, before the full results are released on Sunday. It’s likely that leaks about the results will intensify in this interim period. Data wise, beyond the PMI’s we will get French confidence numbers and UK September retail sales, whilst in the US we will get initial jobless claims (expected in at 281k vs +264k previously). We will also get earnings reports from the likes of Credit Suisse, Daimler and Tesco in Europe, and American Airlines, GM, Microsoft and Amazon in the US.

via Zero Hedge http://ift.tt/12hPJEK Tyler Durden