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  • U.S., U.K. AAA rating at risk. Moody's fingered the U.S. and U.K. among top-rated sovereign borrowers, saying the two must prove they can reduce their bulging deficits or risk a downgrade to their AAA credit ratings. Moody's called the pair merely "resilient" rather than "resistant," a label it applied to Canada, France and Germany. Under its most pessimistic scenario, the U.S. could lose its rating in 2013 if economic growth lags, interest rates rise and the government fails to shrink the deficit or recover its loans to the financial sector. "The question of a potential downgrade of the U.S. is not inconceivable," Moody's chief international economist Pierre Cailleteau said. "In a world that has lost its compass a bit, people want to understand what happens to risk-free assets."
  • FedEx boosts outlook, lifts sentiment. Global shipper FedEx (NYSE:FDX) said late Monday its FQ2 profit will exceed forecasts due to better-than-expected growth in international and ground shipments. EPS will be $1.10, FedEx said, up from a previous forecast of $0.65-0.95 and the $0.86 Street consensus. CFO Alan Graf said overseas demand has "improved significantly" since Q1. Investors' reaction underscored FedEx's role as an economic bellwether: "It's definitely an up arrow for the global economy," Wells Fargo economist Mark Vitner said. "It's another unexpected bit of good news. I'm still somewhat cautious that things have really improved, but there's definitely something going right here." FDX +3.1% after-hours. UPS +2.4%.
  • Citi, Wells stuck in TARP trap. Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) are said to be in contentious talks with the government over how much capital they need to raise to exit TARP. While bank executives would like to move forward under terms similar to those granted Bank of America (NYSE:BAC) last week, Fed and Treasury officials want the two banks to raise more capital relative to the loans they're seeking to repay. Both banks are reluctant to sell the amount of shares they're being asked to because of steep shareholder dilution, which makes it likely they'll remain in TARP limbo for the foreseeable future.
  • Green Mountain wins war for Diedrich. Following a month-long bidding war, Diedrich Coffee (DDRX) agreed to be acquired by Green Mountain (NASDAQ:GMCR) for $290M after Peet's Coffee & Tea (NASDAQ:PEET) backed down and said it would not make a counter offer. Green Mountain will acquire all outstanding shares of Diedrich for $35 in cash, and will also pay Diedrich's $8.5M termination fee with Peet's. Diedrich, whose shares traded as low as $0.31 in March, found itself in the middle of a scramble to own its single-cup brewing systems, known as K-Cups. K-Cups are licensed to be used in Keurig single-cup home-brewing systems, which Green Mountain owns.
  • Consumer credit nears return to growth. Borrowing by U.S. consumers fell for a ninth-straight month in October, but the $3.5B drop in oustanding credit was far less than the $9.4B decline economists expected. September's contraction was also revised upward; credit fell by only $8.8B, not the $14.8B reported last month. Taken together, the positive surprise and the upward revision suggest consumer credit may return to growth by year-end - a strong psychological motivator to the markets, and a possible signal the consumer will play a role in pulling the economy out of recession.
  • Debt defaults seen slowing in 2010. Mortgage and credit-card delinquency rates should decline next year, ending a trend of unprecedented year-over-year increases that began in 2006, TransUnion said in its 2010 outlook this morning. Credit-card debt delinquency is expected to decline to 1.04% from 1.07% this year, as consumers "keep incremental debt to a minimum and aggressively manage debt repayment." Mortgage loans 60+ days overdue will decline to 6.39% from a current 6.56%, TransUnion predicts, a dramatic shift from the 43-54% increases seen over the past three years, due in part to more conservative underwriting standards, and as problem mortgages work their way out of the system.
  • Fed cools rate hike concerns. Fed chief Ben Bernanke said Monday the economic recovery still faces "formidable headwinds"; noted that inflation is liable to be subdued for some time; and warned unemployment will likely remain elevated, cooling speculation of an early increase in interest rates. A surprising decline in the U.S. jobless rate Friday spurred concerns the Fed might move quickly to raise rates, but Bernanke said the Fed was sticking to its pledge to hold borrowing costs at exceptionally low levels: "Right now we are still looking at the extended period given that conditions remain - low rates of utilization, subdued inflation trends, and stable long term inflation expectations." New York Fed President William Dudley echoed Bernanke's sentiments Monday evening: "We still have some ways to go before we can be assured that the recovery will be self-sustaining," he said.
  • GM, BAIC discuss Saab carve up. Sources say GM is in talks with BAIC, China's No. 5 car maker, about a partial sale of its Saab assets, including tooling and technology. BAIC lacks its own brand, and is considering setting up production in China based on a previous generation of Saabs, which it may or may not market under the legacy brand. A partial sale would likely clear the way for a liquidation of Saab's other assets, including its Sweden headquarters. GM is also vetting several bidders that have shown an interest in buying the entire business, and a spokeswoman said this morning Saab remains optimistic it can avoid a carve up.
  • Morgan Stanley shuffle. Morgan Stanley (NYSE:MS) is reportedly set to announce a number of changes to senior management, including putting CFO Colm Kelleher and veteran banker Paul Taubman in charge of the firm's institutional securities unit, its largest division, parts of which have sputtered recently. The shuffle is being orchestrated by James Gorman, who is set to take over as Morgan Stanley's CEO Jan. 1.
  • China sees V-shaped rebound. China is experiencing "a clear V-shaped recovery," Zhu Min, vice-governor of the People's Bank of China said Tuesday - one day after Beijing said it would stay the course with pro-growth policies implemented to neutralize the shock of the global financial crisis. He added that the economy was well on track to meeting or exceeding Beijing's 2009 growth target of 8%. China analysts believe recent rhetoric, including a vow to "strictly" control new investment projects, suggests that 2010 fiscal policy will be much less accommodative than it was this year. (ETFs: FXI, PGJ)
  • Economists underwhelmed by Japan plan. Japan's government signed off on an $81B stimulus package Tuesday, but economists said the ¥7.2T plan wouldn't be enough to significantly lift Japan's export-dependent economy, nor prevent another bout of deflation. The new package will go toward low-interest mortgages for new home buyers and incentives for users of "green" technologies.

Earnings: Before Open

  • AutoZone (NYSE:AZO): FQ1 EPS of $2.82 beats by $0.16. Revenue of $1.59B (+7.5%) in-line. (PR)
  • Brown-Forman (NYSE:BF.B): Q2 EPS of $0.99 beats by $0.15. Revenue of $893M (-4.5%) vs. $884M. Sees full-year EPS of $2.95-3.15 vs. $2.87 consensus. (PR)
  • H&R Block (NYSE:HRB): FQ2 EPS of -$0.38 beats by $0.02. Revenue of $326M (-7.2%) vs. $347M. (PR)
  • Kroger (NYSE:KR): Q3 EPS of $0.27 misses by $0.10. Revenue of $17.67B (+0.3%) in-line. Cites persistent deflation, increased competitive activity and the cautious spending behavior of customers for miss. Shares -8.3% premarket. (PR)
  • Sanderson Farms (NASDAQ:SAFM): FQ4 EPS of $0.96 beats by $0.03. Revenue of $469M (+1.9%) vs. $451M. "Current market conditions reflect ongoing weakness in consumer spending and slow restaurant traffic. While retail grocery trends remain favorable, meaningful improvement in demand for chicken from food service customers will not likely occur until the national employment situation improves and consumers start dining out again." (PR)
  • Vail Resorts (NYSE:MTN): FQ1 EPS of -$1.14 beats by $0.12. Revenue of $80.8M (-47.1%) vs. $85.5M. Cites strong pass sales, but mixed lodging bookings. (PR)

Earnings: Mon. After Close

  • Focus Media (NASDAQ:FMCN): FQ3 EPS of -$0.99 may not be comparable to consensus estimate of $0.12. Revenue of $167M (-26%) vs. $130M. Shares -8.1% AH. (PR)

Today's Markets

Overseas markets were mostly lower Tuesday. Futures spent much of the overnight session in positive territory, but have moved lower over the past hour.

  • Asia: Nikkei -0.3% to 10140. Hang Seng -1.2% to 22061. Shanghai -1.1% to 3297. BSE +1.4% to 17228.
  • Europe at midday: FTSE -1.3% to 5241. CAC -0.9% to 3806. DAX -1.1% to 5720.
  • Futures: Dow -0.4% to 10352. S&P -0.4% to 1099. Nasdaq -0.5%.
    30-year Tsy +0.29% to 119-15. 10-year +0.29%. 5-year +0.21%. 2-year +0.07%.
    Crude -0.3% to $73.71. Gold -0.5% to $1,158.
    Euro -0.1% vs. dollar. Yen +0.9%. Pound -0.9%.

Tuesday's Economic Calendar

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