- Deutsche Bank dives on profit warning. Shares of Deutsche Bank (DB) are being pummeled in Frankfurt and premarket U.S. trading after Germany's No.1 bank warned it would book a Q3 loss stemming from its purchase of Postbank, and from "the poorer market conditions during the summer months." The warning was part of a prospectus for DB's €10.2B share sale to pay for the acquisition of up to 30.6% of Postbank's outstanding shares (DB already owns 30% of Postbank). DB -8% premarket.
- Fed hints at QE 2.0. The Fed reiterated its commitment to near-zero interest rates yesterday, as expected, but opened the door to the possibility of more QE in the near future. In the key amendment to its policy statement, the FOMC shifted its focus from the weak economy to the possibility of disinflation: "The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate." The focus shift is important, economists say, because it allows the Fed to double down on QE without having to imply further economic weakness - which could counteract any expansionary measures.
- Default risk drops to two-year low. The number of U.S. companies at significant risk of default (rated B3 or below) recently fell to a two-year low, according to Moody's. "What's interesting is the snap back," Moody's David Keisman said. Government liquidity initiatives are helping to improve credit quality and lessen default risk.
- India Boeing deal marks growing military alliance with U.S. India is putting the final touches on a $5.8B deal to acquire 10 Boeing (BA) C-17 Globemaster III planes, senior government officials say. Starting with the landmark civilian nuclear deal of 2008, India and the U.S. are building a strategic alliance which security experts say could act as a counterweight against China's growing military clout.
- AIG nears $4-5B sale of Japan units to Prudential. Sources say AIG (AIG) is nearing a deal to sell two Japanese life-insurance companies to Prudential Financial (PRU) for a combined $4-5B. A deal would help AIG repay the more than $90B it owes taxpayers. Earlier this year, a $35.5B deal to sell AIA to Prudential plc (PUK) disintegrated after shareholders balked at the price.
- China-Japan trade spat escalates. This morning, China Premier Wen Jiabao threatened more retaliatory action unless Japan "immediately and unconditionally" releases the trawler captain accused of deliberately colliding with a Japanese coastguard ship near disputed islands in the East China Sea. Earlier this week, China severed senior-level government contacts. "The Japanese side has paid no heed to China's numerous serious representations, and so China cannot but take necessary countermeasures," Wen said. The dispute is being closely watched by other Asian countries and the U.S., who have growing concerns about China's expanding naval power.
- Summers is Harvard bound. Lawrence Summers will become the third economist to leave the Obama Administration, saying Tuesday he will return to Harvard at year-end. Former Xerox (XRX) CEO Anne Mulcahy is thought to be the frontrunner to succeed Summers at the helm of the National Economic Council - which could ease criticism that the administration lacks private-sector experience and is aloof from corporate America. Friends say Summers' departure is not due to the scathing criticism, but out of fear of his tenure being revoked.
- BOJ official hints at further easing. Bank of Japan policy board member Ryuzo Miyao suggested today that the BOJ will continue to loosen its purse strings, saying the central bank would take "timely and appropriate" action if downside risks to the Japanese economy materialize. In his speech, Miyao expressed deep concerns over the future of the U.S. economy, saying risks are growing that it "could grow only at a slow pace in the mid- to long-term" due in part to weak employment conditions and fragile consumer spending.
- Microsoft boosts dividend, takes on more debt. Microsoft (MSFT) raised its quarterly dividend by $0.03 to $0.16, and said it would borrow up to $6B in short- and long-term debt, saying the move "reflects our commitment to returning capital to our shareholders and our confidence in the long-term growth of the company" - which it has done to the tune of $170B over the last 10 years. Still, with Microsoft facing a post Windows 7 growth conundrum, some say the raise is a sad admission of defeat. "In a world in which there are a number of companies which would augment Microsoft's current businesses, it has not found one among them that it will risk buying."
- Daimler ponders $12B bid for Fiat unit. Sources say Daimler (OTCPK:DDAIF) is mulling a $12B bid for Fiat's industrial unit, which is set to be spun off and listed in January. The unit, called Fiat Industrial, includes the Iveco truck unit and CNH Global (CNH) farm equipment company. Daimler has denied the report, and analysts think Daimler may be interested only in Iveco.
- Hot tempered HSBC chief threatens to quit. HSBC (HBC) CEO Michael Geoghegan has reportedly threatened to resign if he is not promoted to chairman. With Stephen Green taking over as U.K. Trade Minister, HSBC is planning to abandon its tradition of promoting chief executives to the chairman role – prompting Geoghegan's ire.
- Expect BlackPad next week. According to the WSJ, Research In Motion (RIMM) will unveil its BlackPad tablet computer at a developer conference next week, and provide details on the OS it will use. BlackPad will reportedly be released in Q4; will include a 7-inch touch screen and 1 or 2 built-in cameras; will have Bluetooth and WiFi connections; and will link to cellular networks only via a BlackBerry phone. BlackBerry chip-maker Marvell (MRVL) will supply the chips.
- Mortgage applications inch lower. Mortgage applications fell by 1.4% over the past week, vs. a steeper 8.9% drop a week earlier, MBA said. The 30-year fixed mortgage rate fell to 4.44%.
- Home construction jumps from low base. Housing starts spiked a surprising 10.5% in August to 598K (vs. 550K consensus, 546K in July), but concerns remain regarding the direction of demand. The rise was driven by a 32% M/M increase in the condominium and apartment market; single-family homes grew just 4%. Permit applications, a sign of future activity, grew by 2% to 569K.
- Asia: Japan -0.4%. Hong Kong +0.2%. Shanghai +0.1%. India -0.3%.
- Europe at midday: London -0.5%. Paris -1.3%. Frankfurt -0.9%.
- Futures at 7:00: S&P -0.22%. 10-yr +0.31%. Euro +0.87% vs. dollar. Crude +0.55% to $75.38. Gold +1.59% to $1294.50.
Earnings: Wednesday Before Open
Earnings: Tuesday After Close
- Adobe (ADBE): FQ3 EPS of $0.54 beats by $0.05. Revenue of $990M (+42%) vs. $985M. Issues mixed guidance for Q4. Shares -9.1% AH. (PR, earnings call transcript)
- Cintas (CTAS): FQ1 EPS of $0.40 beats by $0.02. Revenue of $924M (+3.6%) vs. $915M. Shares +0.1% AH. (PR, earnings call transcript)
- Darden Restaurants (DRI): FQ1 EPS of $0.80 beats by $0.03. Revenue of $1.8B (+4,2%) in-line. Shares -1.9% AH. (PR)
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
10:00 FHFA Housing Price Index
10:30 EIA Petroleum Inventories
2:00 PM Hearing: Implementation of the Dodd-Frank Act
- Notable earnings before Wednesday's open: GIS, KMX
- Notable earnings after Wednesday's close: BBBY, RHT
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