Global markets brace for budget drama in the U.S. Amid talk of how many days past October 1 the U.S. government can push off a default on its obligations, global money managers are starting to position themselves for the inevitable October drama. Dogged Republicans obsessed with stopping healthcare reform continue to dominate the conversation. Deutsche Bank is of the opinion that a stopgap measure called a continuing resolution will kick the can down the road further. Markets in Europe and Asia are off slightly, with Japan being a notable exception. U.S. markets will try to break the five-day losing streak for the S&P 500 Index and Dow Jones today. Futures point higher in early trading with a report on U.S. jobless claims on tap to be released.
Oil prices still in retreat. Oil futures indicate a sixth straight day of losses could be in store for world markets after soothing rhetoric from Iran eased lingering supply worries. Analysts think oil could stay in a downward trend with a distinct "diplomatic thaw" settling over the Middle East. Yesterday, the EIA reported U.S. crude reserves increased 2.6M barrels for the week ending September 20, while analysts had expected a drop of 900K.
Top Stock News
Nokia reportedly interested in Alcatel-Lucent linkup. Nokia (NYSE:NOK) is considering a strategic tie-up with Alcatel-Lucent (NYSE:ALU) to help give it an edge in wireless networks, according to sources. Though no talks have ensued yet, some analysts think a pursuit of Alcatel-Lucent's mobile ad network makes sense for the Finnish company. Shares of Alcatel-Lucent are up over 6% in Paris trading.
RBC sees big impact if Keystone rejected. A U.S. rejection of the Keystone XL pipeline (NYSE:TRP) could defer 300K bbl/day of oil sands growth during 2015-17, shaving $1.8B from planned capital expenditures and pushing as much as $7.8B in spending on oilfield services beyond 2018, according to an RBC Capital report. Newer projects set to come online after 2016-17 could be deferred if Keystone isn't approved, but the overall impact likely would be mitigated by use of rail and competing pipelines, and producers such as Suncor Energy (NYSE:SU), MEG Energy (OTCPK:MEGEF) and Cenovus (NYSE:CVE) who already have plowed billions into expansions of existing projects are hardly expected to change course.RBC echoes the emerging consensus view that bitumen growth is likely to continue regardless of the ultimate Keystone verdict.
Reports of a Hail Mary from J.C. Penney in the form of an equity raise. J.C. Penney (NYSE:JCP) is reportedly leaning toward raising between $750M to $1B in a new equity raise, although other avenues of finding capital are still on the table. Yesterday, a pair of negative research notes took a heavy toll on JCP shares to take them below the $10 mark for the first time since 2000. Cash burn is one of the most pressing issues at J.C. Penney with the retailer forecast to to consume $1.1B in cash during the first three quarters of fiscal 2014. If holiday sales miss the mark of analysts, the situation becomes even more dire.
German union model could be a go in the U.S. The UAW is closer to seeing the unionization of a Volkswagen (OTCQX:VLKAY) plant in Tennessee based on the works council model popular in Germany. If the union is willing to move from its traditional model and the automaker is convinced to push forward, the next hurdle will be convincing Tennessee Republicans to step out the way. Ultimately, the development of a works council at the plant could be the first step in organizing unions at the U.S. locations of other foreign automakers.
Leveraged buyout goes south for investment banks. JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Goldman Sachs (NYSE:GS) could lose a combined $100M on debt the banks pledged to sell in order to finance the takeover of Rue21 (NASDAQ:RUE). The banking trio plan to offer the retailer's debt at discount prices of $0.80-$0.85 on the dollar, according to sources. Taking a bath on leveraged buyout debt is rare, but the meltdown in same-store sales at Rue21 turned the tables on the bankers.
Fairfax confident, but BlackBerry quiet. Fairfax CEO Prem Watsa thinks his consortium will secure the necessary financing to complete its bid for BlackBerry (NASDAQ:BBRY). The confidence from the exec helped BlackBerry shares add a nickel in after-hours trading to reach $8.05 - still a ways off from Fairfax's $9 offering price. Fairfax has until November 4 to finish its due diligence. Meanwhile, don't expect a lot of answers from the BlackBerry side. The tech company canceled its earnings call scheduled for later this morning following the release of FQ2 earnings.
Management changes at Western Digital. Western Digital (NASDAQ:WDC) CFO Wolgang Nicki resigned to become the CFO of Dutch chip equipment giant ASML. The hard drive maker has begun a search for a replacement. The company has been without a full-time finance chief since Peter Wennink was appointed CEO earlier this year. Wennink, who took over as CEO from Chairman Eric Meurice, has been serving has as both CEO and CFO since July 1.
Top Economic & Other News
Government shutdown could shave 0.3 points from GDP. Macroeconomic Advisers estimates the economy will see a 0.3 percentage point negative impact in Q4 if the U.S. government shuts down for two weeks. The firm sees output rebounding in the Q1 of 2014. A far bigger issue to Macroeconomic Advisers than the sideshow of the government shutdown is the impact if the debt ceiling is breached sometime later in the fall.
Gross no fan of Moody's. Bill Gross takes a swipe at Moody's with accusations that the ratings agency and the U.S. Treasury Department are just one "happy family" working in harmony. In his Twitter rant, Gross indicated investors should trust S&P, Fitch, & Egan Jones over the braintrust at Moody's. Berkshire Hathaway (BRK.A, BRK.B) holds close to 11% of Moody's, which declined to comment on the online musings of Gross.
Americans aren't banking on economic recovery. A Bloomberg poll shows Americans aren't counting on a major economic recovery over the next year. The percentage of respondents indicating they anticipate improvement in the economy’s strength over the next year dropped to 27% after being at 39% in a poll conducted about three months ago. The sag in consumer confidence helps explain the poor growth of retail sales (XRT, PMR, RTH) after auto sales and housing are backed out.
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In Asia, Japan +1.2% to 14799. Hong Kong -0.4% to 23125. China -1.9% to 2156. India +0.3% to 19953.
In Europe, at midday, London -0.1%. Paris -0.5%. Frankfurt -0.5%
Futures at 6:20: Dow +0.02%. S&P +0.02%. Nasdaq +0.1%. Crude +0.1% to $102.79. Gold +0.3% to $1337.91.
Ten-year Treasury Yield -2 bps to 2.62%.
Today's economic calendar:
8:30 Initial Jobless Claims
8:30 GDP Q2
8:30 Corporate Profits
9:45 Bloomberg Consumer Comfort Index
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $29B, 7-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
9:15 PM Fed's George:U.S. Economy
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