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Weekend clarity on bank capital requirements out of Basel III coupled with better than expected Chinese industrial production and an EU forecast for stronger growth buoyed US equities Monday. On a sector level, semis and financial stocks led all gainers as Gartner Research estimated that semiconductor equipment spending would double in 2010 and as large cap financial companies reacted positively to less stringent capital requirements and timing, i.e. allowing a longer than expected transitional period.

JP Morgan (NYSE:JPM) and Bank of America (NYSE:BAC) both rose more than 3% while Alcoa (NYSE:AA) and General Electric (NYSE:GE) gained more than 1.6% . Microsoft (NASDAQ:MSFT) advanced 5.3% on news that the software maker will sell debt to fund dividends and buybacks.
News Cycle
But today the Basel / China bounce has faded as European stocks digested a poor ZEW investor sentiment report from Germany, a higher than expected inflation number from the UK and another disappointing fall in the UK RICS house price index. But better than expected US retail sales figures have seen stocks pare loses over lunchtime

Some notable movers this European morning include:

Philips, which lost 2 percent Tuesday after saying it is aiming for annual comparable sales growth on average of at least 2 percent higher than global gross domestic product in the next five years. This was deemed a very conservative by the markets.

And E.ON (OTCQX:EONGY) retreated 3 percent after Germany’s biggest utility was downgraded to “hold” from “buy” at Italy’s UniCredit which cited uncertainty on nuclear power plant extensions. Separately RWE lost 2.1 percent as Societe Generale cut the shares to “sell” from “buy.”

But Cap Gemini climbed 1.3 percent news that it had signed a new contract with the U.K. government, which is embarking on the biggest spending squeeze since World War II. “All existing contracts remain and continue to be delivered as planned,” the company said in a statement on its website. The company “has also put together an extensive menu of new innovative proposals, which would further improve the efficiency” of the U.K. government, the statement said.

Hargreaves Services fell 4 percent pence as the supplier of raw materials and transport for energy companies said full-year group sales declined 8.6 percent to £459.8 million because of falling commodity prices.

And Next shed 1.7 percent as Britain’s second- largest clothing retailer was cut to “sell” from “hold” at Societe Generale. In other broker induced moves Pearson dropped 1.5 percent as the owner of the Financial Times newspaper was cut to “neutral” from “outperform” at Exane BNP Paribas. And Cobham is up nearly 2 percent (marking a 10th day of gains) on news the world’s largest maker of wing-mounted airborne-refuelling equipment was raised to “outperform” from “neutral” at Credit Suisse.

Cable & Wireless is better by 2.3 percent, extending yesterday’s 1.8 percent advance on news that the U.K.’s second-biggest fixed-line phone company had won an £82 million contract with the Foreign & Commonwealth Office for a global telecoms framework for managed services to more than 150 countries. The company said it is “anticipated” that other government departments will contract for services under the agreement. Separately, Morgan Stanley upgraded European telecom stocks to “overweight.”

Gender Issues

Today’s Market Moving Stories

  • The biggest news in Asia was the victory of Japan’s prime minister Naoto Kan against a challenger Ichiro Ozawa. Mr. Ozawa was pushing a far more aggressive stance vs. the appreciating yen and in regards to stimulus, thus we feel Mr. Kan’s win says much about Japan, finally, rejecting the same old failed economic strategies it employed in the past. The yen has hit a 15-year high and is currently around 83.31 per U.S. dollar.
  • An indicator of China’s economic outlook rose for a third month in July, adding to evidence the cooling of the nation’s expansion has stabilized. The leading economic index climbed 0.5 percent to 147.6 in July, The Conference Board’s report showed today. The reading compared with a revised 0.7 percent gain in June and a 0.9 percent increase in May, the New York-based research group said today in a preliminary report on its website. Premier Wen Jiabao yesterday raised his assessment of the world’s fastest-growing economy in the G20, describing it as being “in good shape” after data showed production last month rose the most in three months and import growth accelerated. Wen said that China’s expansion will help drive a global economic recovery.
  • A U.K. housing-market gauge fell more than economists expected in August to the lowest since May 2009 as an increase in supply of homes for sale pushed down prices, the Royal Institution of Chartered Surveyors said. The number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by 32 percentage points, down from minus 8 points in July, the London-based group said in an e-mailed report today. The median forecast in a Bloomberg News survey of 17 economists was minus 12 points. The housing recovery may be faltering as the prospect of the biggest spending squeeze since World War II deters buyers and banks restrict access to credit. Bank of England data show a pickup in mortgage lending has stalled even as policy makers hold the key interest rate at a record low.
  • But strangely U.K. consumer confidence rose in August for the first time in four months as Britons’ optimism about the future economic situation increased, Nationwide Building Society said. The index of sentiment rose 5 points from the previous month to 61, the London-based customer-owned lender said in an e-mailed statement today. A gauge of expectations rose 7 points to 84. While Britain’s economy grew at the fastest pace in nine years in the second quarter, the pace of the recovery may flag as the government implements the biggest spending cuts since World War II to reduce the budget deficit. Deputy Prime Minister Nick Clegg said last week that the recovery is likely to be “choppy and uneven.”
  • And UK August CPI rose 0.5 percent m/m, with the y/y measure stayed at July’s 3.1 percent level. The market consensus was for a 2.9 percent y/y print, and hence inflation remains above the upper limit of the CB’s target range. Even the core CPI was firmer than expected at 2.8 percent y/y, up from 2.6 percent y/y last month and compares to the market consensus estimate for a 2.5 percent y/y reading.
  • Eurozone IP: Flat reading. Industrial Production came out flat m/m. This is not a surprise, given weakness in some of the national data already released, but t is still in contrast with some of the surveys which suggested the momentum in the manufacturing sector carried over in Q3.
  • The closely watched German ZEW survey dropped for a six consecutive month in September with the expectations index falling 18.3 points to -4.3.
  • Sixty-one of the 62 US banks with more than $10 billion in assets meet the capital and liquidity ratios set forth by the Basel Committee on Banking Supervision, said the bearded Richard Bove, an analyst at Rochdale Securities. “We’ve established rules that all of the top American banks already reach,” Bove said today in an interview on Bloomberg Television’s “In The Loop.” “There are definitional issues which may cause a problem here or there, but just taking the gross numbers produced by these banks, 61 of the top 62 in the United States already meet the 2019 standards.”
  • Wall Street is preparing for a Republican surge in Congress that could help it block proposed taxes on banks and investments, blunt new financial regulations and regain some of the lobbying firepower it lost during the financial crisis. What bankers won’t be looking for, lobbyists said, is a repeal — or any major changes — to the Dodd-Frank bill, the most sweeping rewrite of financial regulation since the 1930s. While the law is widely criticized by the industry, Republican gains in the November election won’t be large enough to override a veto by President Barack Obama. Financial firms, which for most of this year have been shifting political contributions to Republicans, say they’ll push Congress to restrain federal agencies that are filling in the details of the law, writing rules in areas including capital standards and a ban on proprietary trading. Banks would prefer to have Republicans overseeing the regulators, lobbyists said.
  • Asian stocks are set for “zero percent” returns over the next 12 months as corporate earnings growth falters, according to Deutsche Bank . The brokerage is “underweight” in Taiwan, India and China, “neutral” on South Korea, Thailand and Indonesia, and “overweight” in the Philippines, Hong Kong, Malaysia and Singapore, strategists led by Ajay Kapur wrote in a report yesterday. “We could end up on the negative side of that zero expected return,” Kapur wrote, citing “impending earnings-per- share disappointments, high relative valuations in Asia, the probability of a stronger U.S. dollar, diminished pricing power, falling terms of trade and deteriorating free liquidity.”

Company / Equity News

  • Debenhams (DBHMY) issued a full year trading statement this morning. The group sees full year pre tax profit £150m ahead of market expectations of £145 million. Debenhams sees like for like sales flat year on year. The group sees gross margin exceeding previous guidance. Debenhams pointed out that it had gained market share in menswear and kidswear. It remains cautious on the consumer however it sees a recovery in like for like sales.
  • The legal liability of auditors for detecting corporate fraud is set to be tested in a New York court, potentially increasing the Big Four accountants’ exposure to multibillion-dollar shareholder claims for malpractice. The New York Court of Appeals will on Tuesday be asked to rule on a key legal defence for auditors against such claims that has been deployed in two high-profile cases. The first is a lawsuit brought on behalf of shareholders in AIG against PwC, the bailed-out insurer’s auditor. The second case relates to protracted litigation by the bankruptcy trustee of Refco Inc, the failed futures broker, seeking damages from a number of the firm’s professional advisers, including its auditor, Grant Thornton.
  • Visa (NYSE:V) and MasterCard (NYSE:MA), the world’s biggest payments networks, tumbled by the most in almost two months after an analyst said federal caps on fees and pending litigation may limit their ability to raise prices. Visa, the second-worst performer in the Standard & Poor’s 500 Index today, dropped 3.8 percent to $65.48 at 4:15 p.m. in New York Stock Exchange composite trading. MasterCard declined 2.6 percent to $193.03. Both companies were downgraded to “market perform” from “outperform” today by Sanford C. Bernstein & Co. analyst Rod Bourgeois. “Investors will need to get used to substantially lessened pricing power,” Bourgeois said in a research note. “We see a higher probability that Visa’s and MasterCard’s stocks will be ‘dead money.’ ”
  • The WSJ reports that at a meeting with Dutch employees here last week, Vodafone Group PLC (NASDAQ:VOD) Chief Executive Vittorio Colao said the wireless giant is too much like a lumbering jumbo jet stuck on the runway: “A little bit too heavy, not fast enough.” Two years after taking the helm at Vodafone, Mr. Colao is trying to get his company to fly faster and higher — aiming to maneuver past its fading business of telephone calls and deeper into the world of mobile data. “Vodafone has gone through a phase where our industry was developing geographically, mobile only,” Mr. Colao said in a recent interview. “Now, we are in a phase where we need to think more consolidation and total communication.” To make headway, he plans to jettison the baggage that Vodafone accumulated over more than a decade of expansion. That includes sorting out and possibly selling the minority stakes it acquired in mobile-phone operators around the world — holdings worth tens of billions of dollars that many shareholders want Vodafone to dump.
  • Intel’s (NASDAQ:INTC) will get its latest chip design into personal computers by early next year, a bid to improve PC graphics and ward off a challenge by Advanced Micro Devices Inc. The company’s new design, called Sandy Bridge, features built-in graphics that will “revolutionize” computers, Chief Executive Officer Paul Otellini said today at the Intel Developer Forum in San Francisco. The approach lessens the need for separate chips to handle graphics and speeds up video processing, he said.
  • Bloomberg reports that computer-chip makers had the biggest gain of any industry in the Standard & Poor’s 500 Index after research firm Gartner Inc. said semiconductor capital equipment spending will more than double this year from 2009. Micron Technology Inc. (NASDAQ:MU), the Boise, Idaho-based chipmaker, rose 8.3 percent to $7.05 at 4 p.m. in Nasdaq Stock Market composite trading, the largest gain in the S&P 500. Advanced Micro Devices Inc. (NASDAQ:AMD) of Sunnyvale, California, gained 6.4 percent to $6.18. Nvidia Corp. (NASDAQ:NVDA) advanced 5.7 percent to $10.64, while Intel Corp., the world’s largest chipmaker, climbed 3.3 percent to $18.56. An index for the industry group rose 3.1 percent, the most among 24 groups in the U.S. stock benchmark. Worldwide semiconductor capital equipment spending is projected to rise to about $36.9 billion in 2010, from $16.6 billion last year, Gartner said today in an e-mailed statement. “2010 will likely be the strongest year ever for the semiconductor equipment industry,” said Klaus Rinnen, managing vice president at Gartner, in the statement.
    “Capital expenditure is above 95 percent due to strong spending by the foundry and logic segments, along with a technology upgrade for the memory manufacturers.”
  • Microsoft (MSFT) is planning to sell debt this year to pay for dividends and share repurchases because too much of its cash is held overseas, according to a person familiar with the matter. The company would try to raise as much as it can without jeopardizing its debt rating of AAA, the highest possible, said the person, who declined to be named because the plans are confidential and not completed. Microsoft could probably issue as much $6 billion more in debt without putting its rating at risk, according to data compiled by Bloomberg.
  • BP‘s (NYSE:BP) claims for its US Gulf of Mexico oil spill will probably be less than the $20 billion it has agreed to set aside for independent claims, a broker quoted incoming Chief Executive Bob Dudley as saying Monday. In a note following a meeting with Dudley, Citigroup paraphrased the incoming CEO as saying “given current estimates of claims the $20 billion Independent Claim Fund [ICF] that BP established probably exceeds calls.” In June, BP agreed to set up the $20 billion fund in an escrow account to cover claims arising from a massive spill after the Deepwater Horizon exploded and sank in April. Dudley also stuck to cost estimates of $32 billion for costs related to the incident, which includes other spending such as cleaning up the spill.
  • Aer Lingus is stepping up talks with Oneworld airline alliance leader British Airways Plc and carriers from the rival Star and Skyteam groups as it seeks to decide which of the three global blocs to join next year. The Irish company has been in contact with Oneworld, where British Airways is acting as its sponsor, and those negotiations are set to intensify, Chief Executive Officer Christoph Mueller said in an interview. United Airlines and KLM will fulfill the role of intermediaries in discussions with Star and Skyteam. Aer Lingus’s decision is complicated by the roughly equal contribution to revenue of
    existing agreements with alliance members, Mueller said. It currently codeshares with British Airways on Irish flights to London Heathrow, with KLM on Dutch services and with United on trips to North America and London.

The Irish Independent is reporting that Irish Nationwide’s EUR4bn deposit book could be of interest to two buyers, including Irish Life & Perm (OTCPK:ILPMF), which is also bidding for EBS building society. Irish Nationwide is in government hands, having required €2.7 billion of capital earlier this yr and a restructuring plan is currently with the EC. It is in bad shape and it is also feasible the bank goes a similar way to Anglo, with a wind down of the bank or part of it- this certainly wouldn’t be a surprise given its condition but would not be a good outcome for bond holders. There will only be EUR2bn of mortgages left on its books as 80 percent is off to NAMA, so a bad bank/asset recovery bank for these loans could be on the cards. It seems we will know more over the coming few weeks as the EC opines. Irish Life is a respectable bidder for both EBS building soc and the deposits of Irish Nationwide- it has shown itself to be in fairly good shape, following the Irish regulator ruling on its capital late last week. It passed the base case Irish stress test of 8 percent CT1 and 7 percent equity Tier 1, and in a stressed scenario would need a very manageable €145 million, which it says it can fill through the issuance of a VIF securitization of the life book. It has been suggested that Irish Life will separate its bank and insurance company and it could bolster the bank side with these acquisitions. The regulator did say that if the retail bank was spun off from whole group it would need €925 million of capital to complete this.

Elsewhere there was more woe for Bank of Ireland (NYSE:IRE) who have seen their A- credit rating put on negative outlook by US rating agency Standard & Poor’s who are as ever most unhelpful with their timing.

Brian’s Big Night Out.

Well worth a read.

And finally…

Disclosure: None
Source: Report From Europe: Stocks Pare Losses on U.S. Retail Sales