U.S. government shutdown increasingly likely. The government is heading for a shutdown at midnight tonight after the Republican-led House yesterday voted to tie federal funding to a one-year delay to Obamacare and a repeal of a tax on medical devices. The Democrat-led Senate is due to meet today at 2 pm, when it's expected to reject the House measures. One option may be for Congress to pass legislation that would cover government financing for a few days and give the sides more time to negotiate.
Italian markets roiled as PM tries to save government. Italian Prime Minister Enrico Letta is set to request a parliamentary vote of confidence for Wednesday as he looks to save his government and avert new elections after Silvio Berlusconi withdrew his party's support for the ruling coalition over the weekend and pulled five ministers out of the cabinet. One possible hope is that disaffected members of Berlusconi's People of Liberty group will back Letta. Italian shares were -1.7% at the time of writing.
Billions at stake as BP heads into next phase of spill trial. The second phase of the trial of BP (BP) over the 2010 Deepwater Horizon rig explosion is due to begin today, with the amount of crude that spilled into the Gulf of Mexico the focus of attention. BP is facing fines of $2.7-18B, depending on how much oil will be ruled to have leaked and whether BP is found guilty of "gross negligence."
Top Stock News
U.S., Italian political turmoil sends shares tumbling. Equities were lower in most places around the world at the time of writing as the U.S. government headed for a shutdown and Italy's government faced collapse. However, European shares remained near five-year highs and were on course for their best quarter in two years. Gold, often a safe haven in times like these, was lower.
Siemens increasing job cuts to 15,000 over two years. Siemens (SI) intends to slash around 7,500 jobs in the next fiscal year, which begins tomorrow, as part of a €6.3B two-year restructuring and cost-savings program aimed at increasing profitability. The cuts would add to a similar number of positions that the conglomerate has already eliminated. Siemens expects to end the fiscal year with 370,000 employees, the same as last year. The company's shares were -1.1% in Frankfurt at the time of writing.
Twitter to make IPO filing public this week. Twitter reportedly intends to make its S-1 IPO filing public within the next few days, with the goal being to start trading by Thanksgiving. However, one concern is that the deadlock in Washington, which could lead to a government shutdown and/or a debt default, could roil markets and hurt the prospects for IPOs. Twitter submitted the S-1 in July but only said earlier this month that it had done so.
Berkshire to receive more than $2B in Goldman shares. Berkshire Hathaway (BRK.A, BRK.B) is set to receive over $2B in Goldman Sachs (GS) shares via warrants that the holding company obtained at the height of the financial crisis in 2008, when its investment helped save GS from collapse. Warren Buffett's firm invested $5B for a preferred holding - which GS redeemed in 2011 - and received warrants to acquire $5B in stock for $115 a share. Berkshire is receiving the stock in lieu of cashing out the warrants.
Earnings at top five banks seen taking major hit. Analysts have cut their earnings estimates for the top five U.S. banks by over $1B in total, due to increasing fears about a sharp fall in trading revenue - especially from fixed-income operations - and higher legal costs. JPMorgan (JPM) has been particularly affected, with consensus for net income down $526M to below $5B. The company's legal woes are seen adding $2B to expenses. Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS) and Citigroup (C) are the other banks to be affected.
Boeing Dreamliner woes continue. In the latest blow to the Boeing (BA) 787's damaged reputation for reliability, Polish airline LOT was forced to land a Dreamliner in Iceland due to an "air identification system fault." The incident came after Norwegian Air removed one of its two 787s from service following over half a dozen technical problems with both planes recently.
Orbital Sciences craft reaches space station. An unmanned Orbital Sciences (ORB) cargo vehicle has linked up with the international space station, delivering food, clothing and student experiments. The firm has a $1.9B contract to supply the station on eight missions, the first of which is due to take place in December. Orbital Sciences is the second private-sector company to send a ship to the station, the other being closely-held Space Exploration.
Top Economic & Other News
China opens Shanghai Free Trade Zone. China has officially opened the Shanghai Free Trade Zone (FTZ), which the government sees as a major step in liberalizing the country's economy and enacting other reforms. The FTZ will be used as a place to test those reforms, such as with the convertibility of the yuan. The FTZ may have helped Chinese shares buck the global trend and end higher today, with companies with Shanghai in their names doing especially well.
Chinese manufacturing PMI not as strong as first thought. HSBC's final reading for September Chinese manufacturing PMI came in at 50.2, sharply below the flash print of 51.2 but slightly above 50.1 in August. "There are still a lot of structural headwinds," says HSBC's Frederic Neumann. "This is as good as it gets for the time being." Nomura's Zhiwei Zhan believes the data indicates that China's economic recovery is unsustainable, and he expects growth to peak in Q3 and then resume slowing.
Abe to take with one hand and give back with the other. Japanese Prime Minister Shinzo Abe will reportedly announce tomorrow that he will go ahead with a planned rise in sales tax to 8% from 5%, but he will also unveil a stimulus package designed to cushion the impact of the increased levy. While the hike is expected to raise ¥7.5T, the Treasury will spend ¥5-7T on the stimulus measures. Unsurprisingly, there's plenty of noise about the apparent paradox of it all.
Health exchanges face tech glitches. The health exchanges that are a key part of Obamacare are due to open for business tomorrow, but some states won't be able to offer full functionality at first because of IT problems. In addition, the Obamacare Spanish-language Internet site won't be ready, while small businesses and their staff won't be able to sign up for weeks. The contractors involved include IBM (IBM) and Infosys (INFY).
Eurozone inflation edges down. Eurozone flash CPI has slipped to a 3 1/2 year low of +1.1% on year in September from +1.3% in August and come in below consensus of +1.2%. Food, alcohol and tobacco have experienced the highest rate of inflation, while energy prices have fallen. The CPI reading is well below the ECB's target of just under 2%, possibly giving the bank room to ease monetary policy further to help boost the eurozone's weak economy.
Alpha-Rich Stock Movers and Great Calls
1) A week ago, Value Digger said one didn't have to be a rocket scientist to understand that Pan Orient's (OTCPK:POEFF) undervaluation was too deep considering the company's prospects. The market seems to agree, as the stock is +13.6% since. Read article »
2) On August 6, Yuanxi Zhang raised red flags about WSP Holdings' (WH) go-private deal, arguing that short sellers could profit if the deal didn't go through. The shares are -27.5% since. Read article »
Alpha-Rich Stocks To Watch
1) Financial Engines' (FNGN) valuation discounts near-impossible growth rates and suggests the company has been lumped in with the wrong peer group. Fund manager Akram's Razor sees considerable downside. Read article »
2) Universal Security Instruments (UUU) trades at less than the value of current assets, with a joint venture thrown in for free. Fund manager Saj Karsan sees it as an extraordinary risk-reward. Read article »
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In Asia, Japan -2.1% to 14455.8. Hong Kong -1.5% to 22860. China +0.7% to 2175. India -1.8% to 19,380.
In Europe, at midday, London -0.8%. Paris -1.1%. Frankfurt -0.9%.
Futures at 6:20: Dow -0.8%. S&P -0.8%. Nasdaq -0.65%. Crude -1% to $101.85. Gold -0.2% to $1336.
Ten-year Treasury Yield -2 bps to 2.62%.
Notable earnings before today's open: CALM
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