Easy come, easier go. After yesterday's last hour ramp driven by a MarketWatch article that said absolutely nothing new about the Fed's monetization plans and an AAPL surge which saw the firm add $22 billion in market cap in one day (or more than the market cap of CBS Corp) sent stocks green, the overnight session has taken it all away and then some, with futures now trading roughly 12 ticks lower or at yesterday's lowest levels. The catalyst is, once again, Spain where Moody's downgraded five Spanishregions including Catalonia after the market close (for the reason, see our piece from the weekend "Spanish Regional Bailout Fund Runs Out Of Money"), coupled with news from Confidencial that Spain's budget deficit will overshoot the EU target of 6.3% and hit at least 7.3%, driven by a €10.5 billion deficit in the social security system, trashing the promises from last month's Spain's "reform" package, and as BNP said (confirming what we warned weeks ago), making the conditionality hurdle suddenly that much higher for Spain. And just as the world was getting comfortable that Spain will get away with using the OMP with virtually no conditions. The cherry on top came from France where the business conditions index slid to a 3 year low on expectations a trough had been put in place. The result is a tumble in the EURUSD to below the 1.3000 barrier, dragging stock futures, commodities, and of course Europe with it, sending the Spanish bond curve yield higher, and generally giving a very sour mood to the day as traders walk in.

What to watch out for today (via SocGen):

In the eurozone, France will be the first to publish its business confidence index. Expected flat at 90, it might indicate that pessimism in 2012 has bottomed out in the eurozone and the worst is behind us. It should also provide an initial indication before tomorrow's publication of confidence indices for the entire eurozone. Stabilisation would thus be good news, even if the road to returning to solid growth might still be long.

As noted above, this printed at 85, the lowest since August 2009, with the October production outlook indicator at -56 on estimates of a -50 print. Hardly inspiring.

Then investors will turn to Canada, with the BoC's meeting. All of the analysts questioned by Bloomberg expect rates to be unchanged at 1.00%. Indeed, except for jobs data, all of the economic indicators published in October showed rather satisfactory trends. Of course, the accompanying press release should be closely scrutinised. Nevertheless, status quo when the vast majority of G10 central banks are heading back toward ultra-accommodating monetary policy, by cutting rates for some (such as the RBA recently) or bolstering their unconventional policies (lately the Fed and BoJ, perhaps the BoE soon), could help slow the rise of the USD/CAD as the exchange rate is nearing the symbolic level of parity.

In the US, the calendar is almost empty, with just the opening of the US Treasury's quarterly refinancing programme. The week should really get going tomorrow with new housing sales and the FOMC.

For the rest of the overnight recap, here is DB's Jim Reid:

Asian markets are trading mostly weaker led by losses on the Shanghai Composite (-0.6%) and KOSPI (-0.3%). Volumes are generally low with Hong Kong closed for a public holiday. The Nikkei (+0.1%) is outperforming the rest of the region after Japan’s economy minister continued to call on the BoJ to increase monetary stimulus to achieve its inflation target, which helped the USDJPY reach 80 in overnight trading for the first time since July. Also weighing on sentiment was Moody’s overnight downgrade of five Spanish regions (Andalucia, Extremadura, Castilla-La Mancha, Catalunya, and Murcia) citing deteriorating liquidity positions.

Recapping yesterday’s markets, the S&P500 posted an impressive 0.75% rally in the final hour of trading to grind out a marginal gain (+0.04%) for the day. A late-day surge in hardware makers helped technology stocks close up 1.1%, impressive on a day when 8 out of 10 industry sectors closed in the red. Before that, the S&P500 traded all the way down to 1422.1 (or -0.77%) which marked the lowest intra-day level since 6th September as Caterpillar’s pre-open earnings/guidance weighed on broader markets. The equipment maker posted earnings 1.7% above consensus but disappointed on the revenue side (1.8% below). The company also revised 2012 and 2013 revenue guidance downwards reflecting a lower customer backlog (down 18% yoy). More broadly, it was a better day for earnings yesterday with an EPS beat:miss ratio of 80:20 and revenue beat:miss ratio of 60:40, albeit with only ten S&P500 companies reporting. Apple broke a 3-day slide to close up 3.97% (adding US$23bn in market cap, equivalent to half the market cap of Facebook) in its largest one day gain since May after some upbeat reports ahead of the company’s expected iPad-mini launch today.

Earlier in Europe, equities started the day on the front foot following Rajoy’s Peoples Party’s election victory on Sunday, but markets turned south following the Caterpillar result. The Stoxx600 ended 0.4% weaker, at the day’s lows, while in the credit space both the Xover (+4bps) and Europe Main (+1.5bps) closed wider.

DB’s Europe economist Gilles Moec thinks that with two key elections out of the way, and a nationalist push likely in the Catalonian elections on Nov25th, it makes less sense for Rajoy to hold out now. The most likely forums for requesting an MoU are probably the ECOFIN meeting on 12th November or at the European Council meeting on 22nd November. Outside of the Spanish elections, it was relatively quiet in Europe. Reuters reported that German officials are studying a plan for Greece to buyback or reprofile its debt. Greek finance minister said that Greece had to “run fast” over the next few days to agree the remaining issues with the troika, telling parliament that “We will go hungry if we do not get the next instalment” (Ekathimerini). A Der Spiegel article noted the growing divide between Merkel and Hollande which was borne out of differences in opinion over banking supervision and control of over national budgets.

Looking at the day ahead, the data docket remains fairly light with Eurozone consumer confidence and French business confidence readings the main highlights. In the US, the focus will remain on corporate earnings with 30 S&P500 companies reporting. Corporate bellwethers UPS and 3M report pre-market while Facebook’s results are due after US market close. Apple is expected to launch its iPad-mini at 10am Pacific time. Where do I queue.....?

and....

http://www.telegraph.co.uk/finance/debt-crisis-live/9627188/Debt-crisis-Moodys-downgrades-regions-in-Spain-live.html

12.28 The European Commission has backed an initiative by 10 of the eurozone countries to introduce a harmonised financial transaction tax (FTT) among themselves to make the financial sector contribute to the costs of the sovereign debt crisis.

The idea was initially tabled in September 2011, with the essence of the proposal that a low-rate, wide-base tax would be applied on all financial transactions with any economic link to the EU. The estimated revenue yield was €57bn.

Following discussions not all of the eurozone member could agree unanimously on a reasanable period.

But 10 countries still wanted the common FTT and wrote to the Commission to allow them to move ahead, by enabling a legal process called enhanced cooperation, which makes it possible for only some countries to implement it.

The 10 countries are France, Germany, Austria, Belgium, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

Commission President Jose Manuel Barroso said in a statement:

I am delighted to see that 10 member states have indicated their willingness to participate in a common FTT along the lines of the Commission's original proposal.

This tax can raise billions of euros of much-needed revenue for member states in these difficult times. This is about fairness: we need to ensure the costs of the crisis are shared by the financial sector instead of shouldered by ordinary citizens.

12.09 Having witnessed the turmoil in the 17-nation eurozone, Polandhas no plans to make the bloc 18 countries.

Speaking at an event in London today, Poland's central bank chief Marek Belka said a sluggish eurozone economy would continue to weigh on growth in Poland, where he and other policymakers are under pressure to cut interest rates.

We think sluggish growth or even stagnation in western europe will weigh heavily on Polish growth prospects.

As long as the euro zone is not stable it's not attractive for us.

11.57 Moving to Spain's Mediterranean neighbour - Reuters is reporting that Portugal is preparing 'Plan B' in case its 2013 tax revenues fall short of targets set under its international bailout

An EU official said the plan would be discussed by international lenders at their next review of the €78 rescue plan in late November. The official told Reuters:

They (the plans) are to make sure there is room for manoeuvre in case there are any slippages in 2013.

This is not to say we believe that the 2013 targets are unrealistic, slippages are not our central scenario. This is more in case something were to happen.

11.49 Staying in Spain, the country's treasury minister Cristobal Montoro has said the nation's central government was very close to meeting its 2012 deficit target of 4.5 percent of gross domestic product, Reuters has reported.

The deficit for the central government - not including the regions or the social security system - was 3.9 percent of GDP to the end of September, he said in an address to Parliament. Reuters quoted him as telling parliament:

The central government deficit in September in homogenous terms ...was 3.9 percent (of GDP). This means we are very close to meet our deficit target for all of 2012.

11.04 Spain continues to dominant the news in the eurozone this morning.

The country held an auction of short-term debt today, raising more money than forecast, with demand outstripping supply by more than two to one, according to the Bank of Spain.

The country raised €3.53bn in three and six-month bonds, compared to its target of €2.5bn-€3.5bn

However, the rate it paid on the three-month bill rose to 1.415pc, up from 1.203pc in the in the previous comparable sale on 25 September.

The rate on the six-month bill fell to 2.023pc from 2.213pc in the same period.

10.26 Following the news that Moody's downgraded five regions in Spain(see 09.41), yields on Spanish 10-year bonds have risen from a six-month low of 5.297, up to 5.57pc.

Last week the ratings agency announced it was holding Spain's soveriegn rating at investment grade level, which prompted a sharp rally in Spanish bonds, which led to yields hitting a six-month low on Friday.

Commerzbank strategist Michael Leister said:

Recent comments indicated that Prime Minister Rajoy has no real urgency to request a bailout and that has taken some steam off the rally and the downgrade of the regions is adding to the negative newsflow.

The market is realising that the momentum we had with a lot of events last week will most likely not be followed up by a quick aid request by Spain and that's prompting some profit- taking. We don't expect a sharp correction but a bit of a pullback.

09.50 Now to Greece, where one of its papers Kathimerini is reporting that the country and its international lenders may agree to lower the country's privatisation targets for the next three years

The paper says Greece will have to raise €8.8bn (£7.2bn) from asset sales and leases by the end of 2015, less than the €19 the country was supposed to raise in the same period under the current terms of itsEU/IMF bailout.

"We expect that it will take more time to achieve the 50 billion euro target," Kathimerini said, citing a draft agreement between Athens and its lenders.

09.41 More bad news for Spain as Moody's downgraded five regions in the country overnight.

Catalonia, which will hold an election on 25 November focused on whether to seek independence for the region that accounts for a fifth of Spain’s economy, and Murcia each received a two-notch downgrade to Ba3 (the third-highest 'junk rating'), while Andalucia also received a two-notch fall to Ba2 (the second-highest 'junk' rating).

The ratings agency gave Extremadura a one-notch downgrade from Baa3 to Ba1 (the highest 'junk' rating) and Castilla-La Mancha also dropped one-notch from Ba2 to Ba3.

Moody's said the cuts were "driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves as of September 2012 and their significant reliance on short-term credit lines to fund operating needs".

09.30 After his victory in one of the regional votes on Sunday, Spain'sprime minister Mariano Rajoy will not be so welcoming of the news that his country's economy has contracted in the three months to September, adding more pressure on him to seek European aid.

The Bank of Spain said the economy shrank by 0.4pc from the previous three month, the same as the contraction in the second quarter.

The data beats the forecast of economists surveyed by Bloomberg who expected a contraction of 0.7pc.

08.55 Staying in the UK, foreign secretary William Hague will say today that public unhappiness with the European Union is “the deepest it has ever been”. According to a story in The Telegraph today Hague will warn European governments, including Germany, that British opinions over the EU are hardening, suggesting the current settlement is becoming “unsustainable”.

Mr Hague will make his comments in Berlin, amid tensions between Britain and Germany over Europe and in particular the EU budget.

Angela Merkel, the German chancellor, is said to be irritated by the increasingly strident stance of David Cameron’s administration. The Prime Minister yesterday insisted Britain would “stick to our guns” on his promise to freeze the EU budget.

08.45 Back in the UK and the future head of the new banking regulator has warned that banks will be allowed to fail in the future despite facing far more intrusive oversight of their businesses. Harry Wilson and Louise Armitstead report:

Andrew Bailey, the senior Financial Services Authority manager who will from April run the Prudential Regulation Authority (PRA), said Britain’s new regulatory system would allow banks to fail “in an orderly way”.

“This will not be a zero failure regime, but one where firms can fail in an orderly way without major detriment to the wider system,” he said.

The PRA will formally come into being on April 1 and Mr Bailey said the body would be “looking closely” at banks’ business models to ensure they were “sustainable”.

08.41 While the eurozone's largest economy is heading for a tough time, the eurozone's bailout fund is also facing a test today.

The Eurpean Union's highest court is to look at claims that the €500bn bailout fund violates EU laws and should be banned in its current form.

The complaint has been brought Thomas Pringle, an independent member of the Irish parliament, has reached the Luxembourg-based EU Court of Justice, which has the power to topple the European Stability Mechanism (ESM).

Pringle argues that the ESM, which was declared operational on 8 October, violates the no-bailout provision under EU law and encroaches on the EU’s role in economic and monetary policy.

You may remember that last month the Germany’s Federal Constitutional Court in Karlsruhe voted not to block the ESM, handing a victory to Chancellor Angela Merkel, who has championed the bailout facility as vital to save the euro area from a fiscal meltdown as it lurches between crises.

No doubt Merkel will be watching the developments on Pringle's claim very closely today.

08.26 But there is one thing we do know: Europe's powerhouse economy is slowing, and could grind to a standstill by the end of the year amid the combined impact of the debt crisis and the global slowdown.Louise Armitstead reports:

The Bundesbank’s monthly report stated: “There are increasing signs that a perceptible expansion of economic growth in the third quarter of 2012 will be followed by stagnation or even a slight decrease in gross domestic product in the final quarter of the year.”

The report added: “In the final quarter of 2012, growth is likely to slow substantially as economic weakness in a number of eurozone countries puts the brakes on growth.”

Germany managed to post 0.5pc growth in the first quarter, followed by 0.3pc in the second quarter, largely on the back of strong exports to America and China. Since the peak of the global financial crisis in early 2009, Germany’s economy has only contracted once, in the fourth quarter of 2011 when GDP fell by 0.1pc.

and news from Greece....

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_23/10/2012_466958

Gov't spokesman: must reach deal today or tomorrow

A few hours before a scheduled meeting on Tuesday between Prime Minister Antonis Samaras and his coalition partners, government spokesman Simos Kedikoglou said that the coalition was facing its «final hurdle» and that a deal on a new package of austerity measures must be signed off on Tuesday or Wednesday at the latest.

"We must reach an agreement today or Wednesday,» Kedikoglou told Skai television.

The spokesman noted that the climate was improving in Greece following a recent visit by German Chancellor Angela Merkel, observing that many Greeks who had withdrawn their savings from local banks were starting to bring their money back.

Kedikoglou emphasized the importance of boosting liquidity in the Greek market, noting that Merkel had stressed this, and remarking that the release of a 31.5-billion-euro rescue loan on which Greece's solvency relies will ensure that no more businesses leave the country. «The two companies that left did not flee to a tax haven or to a country with better labor relations but to countries where liquidity is guaranteed by the banking system,» he said.

Kedikoglou added that the recent European Union leaders' summit had been very positive for Greece, confirming that the debt-wracked country was gradually getting back on track and supporting the coalition's reform efforts. «The government's plan is the only realistic rescue plan for the country, there is no other realistic alternative proposal,» he said.

Commenting on the recent departure of two coalition deputies who had threatened to vote against the austerity package -- one from conservative New Democracy and one from the Democratic Left -- Kedikoglou remarked «not everyone can deal with difficult times.» He said he believed that the vast majority of coalition lawmakers would back the new measures.

Samaras is to discuss the package of 13.5 billion euros in austerity measures as well as a series of so-called prior actions demanded by the troika -- including labor reforms -- in a meeting scheduled for 3 p.m. on Tuesday. Samaras is reportedly intent on clinching the deal by Friday in a bid to secure a positive message at an emergency summit of eurozone finance ministers on Monday despite the objections of Democratic Left leader Fotis Kouvelis and PASOK chief Evangelos Venizelos to proposed changes to labor reforms.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_23/10/2012_467000

Pension delays due to retirements, minister says

Labor Minister Yiannis Vroutsis on Tuesday attributed delays in the approval of pension applications to mass retirements of civil servants and the subsequent staff shortages in the country's public administration.

In comments to Skai, Vroutsis noted that in September more than 85,000 applications had been pending for main pensions and more than 71,000 for auxiliary pensions.

Meanwhile the civil servant' pension fund reportedly has more than 56,000 pension applications pending.

He noted that the average waiting period for the processing of a pension application is 11 months in Attica and 10 months elsewhere in Greece.

"The applications for retirement are constantly growing due to the change in legislation,» he said.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_22/10/2012_466926

Cyprus to invite troika for final talks

Cyprus was planning on Monday night to contact international lenders to invite them to the island for final talks on a comprehensive aid package for the Greece-exposed island, officials said.

While it was unclear when lenders from the European Central Bank, the International Monetary Fund and the European Commission would arrive in Cyprus, authorities have said they want a deal with lenders by the Eurogroup meeting on November 12.

“In a short while, we will send the troika the complete proposals of the government and invite it to Cyprus to negotiate the support package to the Republic of Cyprus,” government spokesman Stefanos Stefanou told reporters on Monday.

Cyprus, one of the smallest economies in the eurozone, followed Greece, Ireland, Portugal and Spain in seeking aid from its EU partners in June because of exposure of its financial system to debt-crippled Greece.

Lenders have demanded salary cuts in a public service work force, which is one of the highest paid in the eurozone, pension reform, privatizations and the creation of a “bad bank” which will assume problem debt in the financial system.

Cyprus’s leftist government says it will resist calls for privatizations, and is proposing staggered pay cuts ranging from 6.5 to 12.5 percent in its public sector.

“The package will bear a cost,” Stefanou said.

“Our attempt is to make it tolerable, and with the contribution of all to overcome the difficulties we are experiencing now.”

http://www.athensnews.gr/portal/1/58704

News bites @ noon

23 Oct 2012 12:12 pm

A couple walks past graffiti outside the Athens' Academy in central Athens, 22 October 2012 (Reuters)

1. LEADERS’ MEETING Prime Minister Antonis Samaras will brief the leaders of the two junior parties supporting his coalition government, Pasok leader Evangelos Venizelos and Democratic Left leader Fotis Kouvelis, on the outcome of the recent EU summit and progress in the government's negotiations with the troika of lenders at a meeting on Tuesday at 3pm in the parliament building.

2. PRIVATISATION I The government cannot make any exceptions when it comes to privatising public utility companies (DEKO) the finance minister told a parliamentary committee. Responding to a question from a Pasok MP, Yannis Stournaras said it would be a "huge mistake" were the government decide to examine each case for privatisation separately. Privatisations are a condition for the approval of a 31.5bn euro loan tranche, he stressed, adding “if we don’t get the money, people will starve”. Draft legislation on the full privatisation of public utility companies was approved by MPs from New Democracy and Pasok, but rejected by MPs from Democratic Left, one of the three coalition parties, and other parties.

3. PRIVATISATION II Meanwhile, Stournaras has withdrawn an article from the draft bill on privatisations that would have transferred ownership of all real estate used by organisations and state enterprises in the broader public sector to the Hellenic Republic Asset Development Fund (HRADF). The specific article had drawn strong criticism from the academic community and universities, since it also would have transferred all university properties to the HRADF.

4. AIRLINES Aegean Airlines on Monday announced that it has agreed to buy rival Olympic Air from Marfin Investment Group (MIG) for 72m euros. Under the terms of the agreement, Olympic will become a subsidiary of Aegean, with the two companies maintaining their brand names and logos and their flight programme, fleet and staff. Management will be integrated. The deal must be approved by the competition authorities.

5. ECONOMY The country's fiscal deficit fell to 9.4% of GDP in 2011, while the public debt soared to 170.6% of GDP, the EU's statistical wing announced on Monday. In a report, Eurostat said that the eurozone’s fiscal deficit fell to 6.2% of GDP in 2010 and 4.1% in 2011, while in the EU-27 the deficit eased to 6.5% and 4.4%, respectively. Greece posted the highest public debt (170.6%), followed by Italy (120.7%) and Portugal (108.1%). Primary spending rose to 90.8% of the general government’s total spending in the second quarter, from 86% last year, while social spending fell to 44.3% this year from 44.5% in 2011 and capital spending eased to 9.2% of total spending from 14% over the same periods, respectively.

6. PRESS Thessaloniki once hosted a vibrant and notable Bulgarian-language press, with roughly 25 Bulgarian-language newspapers and magazines published from 1891 to 1913, a conference was told on Monday. The newspapers and magazines were published not to promote rivalry with the rest ethnic communities but to increase their influence in their own community, media professor Vlassis Vlassidis told the “Thessaloniki: A City in Transition, 1912-2012” conference. The international conference was hosted within the framework of events marking the 100th anniversary of the liberation of Thessaloniki from Ottoman rule.

7. MP GOES INDEPENDENT The three-party coalition lost another MP on Monday when Yiannis Michelogiannakis, a Democratic Left MP for Irakleio in Crete, announced his decision to sit as an independent. At the weekend, New Democracy expelled an MP who said he could not vote for the forthcoming austerity package.

8. BANK WORKERS STRIKE The bank employees' union OTOE has called a 24-hour strike in the banking sector for Wednesday in protest at the tabling of an amendment in parliament transferring bank workers' health funds to the newly formed National Organisation for the Provision of Health Services (EOPYY).

9. PROPERTY TAX Among the proposals discussed at a meeting on Monday at the finance ministry on a single property tax to replace the various taxes currently imposed on real estate from 2013 is a tax with a coefficient starting at 0.1 percent and reaching 2 percent for real estate of significant value. There are also a proposal to impose a tax on the whole objective value of a property, without a tax-free allowance, which would also apply to any farming land owned by a taxpayer. Ministry sources say no final decision has been made.

Catharsis Ours

Tuesday, October 23, 2012

Overnight sentiment - key news items and data from Asia and Europe and a view to today's market action....

Overnight Sentiment: Crashy

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