Market whiplash. Stocks recovered remarkably on Monday, turning green near the close amid reports Italy will get help from China in its debt crisis. This morning, however, the dour mood has returned after reports of a denial from China, sending Europe markets to a new two-year low, led once again by France, and bringing equity futures under pressure.
Markets discount talks of a China Italy rescue. Italy confirmed reports it has talked with Chinese officials about a strategic investment in Italy, but China has declined to comment, leading analysts to believe any talks are likely preliminary, and unlikely to lead to anything substantive. Italy's debt-to-GDP ratio is second in the eurozone only to Greece's.
"We can no longer borrow dollars." BNP Paribas (BNPQY.PK -7.7% in Paris) categorically denied a WSJ op-ed (penned by Nicolas Lecaussin of France's Institute for Economic and Fiscal Research) citing an unnamed official who says the bank is unable to borrow in dollars, and is participating in the creation of a market in euros. "We hope it will work," said official says. "Otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore." The report prompted German Chancellor Angela Merkel to warn officials to "carefully weigh their words."
Merkel rejects Greek default. "The top priority is to avoid an uncontrolled insolvency, because that wouldn't just hit Greece," German Chancellor Angela Merkel said this morning, adding: "Everything must be done to keep the euro area together politically, because we would very quickly face a domino effect." Her comments are a rebuff to members of her ruling coalition who have pushed to consider allowing Greece's insolvency and exit from the euro.
Geithner to the rescue? Treasury Secretary Geithner will make an unexpected trip to Poland this week for a meeting with eurozone FMs as fears of a Greek default decimate Europe's banks. Geithner's trip marks the first time a U.S. Treasury Secretary will attend a eurozone FM meeting.
BofA calms investors with cost cuts, sort of. Shares of Bank of America BAC closed +1% after CEO Brian Moynihan told investors the company will seek $5B in annual cost cuts (about 18%) and slash 30K jobs. Moynihan was non-committal on pushing Countrywide into bankruptcy, and had "nothing new" to say about mortgage settlement talks. BAC -2.3% premarket.
IEA sees weaker oil demand. The IEA cut its forecast for oil demand due to a lowered GDP outlook to 1M barrels per day this year and 1.4M barrels per day in 2012. The agency now sees a small surplus if "significant downside risks" to the economy push growth lower. Libya - the wildcard in the mix - is expected to produce 350K-450K daily barrels of oil, ramping up to 1.1M by the end of 2012.
In U.K., whispers of the S word. Stagflation continues to be the word in the U.K., with inflation rising to 4.5% in August from 4.4% previously. In a required explanation letter, BoE Gov. King blamed temporary factors such as a bump in sales taxes and a rise in global energy prices.
SAP pays $20M to settle criminal theft probe. SAP is paying $20M to settle a criminal probe investigating whether its TomorrowNow subsidiary illegally downloaded millions of files from Oracle (NYSE:ORCL) - just another step in the two companies' long-running legal battles.
Dr. Watson to triage... WellPoint (NYSE:WLP) says it plans to use Watson, IBM's Jeopardy-playing computer system, to help suggest treatment options and diagnoses to doctors. For IBM, the agreement could provide some real-world heft for Watson, which the company boasts can process 200M pages of content in less than three seconds.
Microsoft resists calls to spread the wealth. Sources say Microsoft (NASDAQ:MSFT) will likely raise its dividend 19% as early as this week - a disappointment to investors who want the tech giant to share more of its $52.8B cash hoard with shareholders.
There goes the newspaper recovery. New York Times (NYSE:NYT) shares have dropped to a two-year low - signalling investors have lost hope in a newspaper industry recovery. Revenue from its new subscription wall, while surprisingly strong, remains only a very small part of total sales, and won't likely offset the costs of its newsroom.
So how's that short sale ban working out? One month after the short-selling ban was implemented in parts of Europe, French banks are down another 14% and Spanish banks 8%. Some banks have fared far worse: SocGen (OTCPK:SCGLY) -37%, BNP Paribas (OTCQX:BNPQY) -20%, and Credit Agricole (OTCPK:CRARY) -30%.
Slowly slipping into... Top economists are marking down growth forecasts for 2011 and 2012, to 1.7% this year (down from 2.8%) and 2.3% next year (from 3.2%). The latest survey from the National Association of Business Economics shows panelists in line with others accounting for a problematic year including earthquakes, hurricanes, debt debates in Europe and the U.S., and a gas price flare-up.
Stocks to pay the price. As the markets swoon and GDP forecasts get slashed, year-end targets for the S&P 500 are coming down as well. Barclays has cut its target to 1325 from 1450; Wells Fargo to 1250 from 1390; and Ed Yardeni - who expects a retest of the July 2010 low of 1022 - to 1150 from 1250. BofA, meanwhile, can't get its signals straight: Technical analyst Mary Ann Bartels posits the S&P could shed more than 20%, but fundamentals guy David Bianco sees strong 2012 earnings growth propelling a 30% jump.
Predictions of a gloomy holiday season. A whopping 82% of Americans plan to spend less money this holiday season. Standing in the line of fire are mass merchandisers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), according to America's Research Group, as more shoppers move a step beyond traditional discounters to dollar stores offering basement-level prices. Some retailers - including HD, SHLD, COST, and JCP - have already begun or will soon begin discounting merchandise.
Loan defaults signal student stress. Student-loan default rates are on the rise - to 8.8% from 7% - with the sharpest increase coming from the troubled for-profit sector, where the rate has jumped to 15% from 11.6%. The government has promised to crack down - banning schools from taking students with federal loans if they don't meet certain criteria.
Asia: Japan +0.9%. Hong Kong closed. China -1.1%. India -0.3%.
Europe at midday: London -0.7%. Paris -2.3%. Frankfurt -0.4%.
Futures at 7:00: S&P -0.93%. 10-yr +0.11%. Euro -0.29% vs. dollar. Crude +0.67% to $88.78. Gold +0.06% to $1811.65.
Tuesday's economic calendar:
7:30 NFIB Small Business Optimism Index
7:45 ICSC Retail Store Sales
8:30 Import/Export Prices
8:55 Redbook Chain Store Sales
9:00 Ceridian-UCLA Pulse of Commerce Index
10:00 IBD/TIPP Economic Optimism
1:00 PM Results of $21B, 10-Year Note Auction
2:00 PM Treasury Budget
Notable earnings before Tuesday's open: BBY
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