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Risk on, then off, then on... Stocks surged Tuesday but gave back half of their gains in the final hour following reports of a split in the eurozone over terms of the next Greece bailout (more below). Treasury prices continued their slide, sending 10-year yields back to 2%. It was risk-on in commodities, as gold and oil rose sharply. Shaking off early weakness, futures point to a strong open.

Troika audit to decide Greek fate. Greece faces a new test today as troika auditors head for Athens, which could lead to parts of Greece's €109B rescue being reopened: "We have to wait and see what the troika finds," German Chancellor Merkel said, "it will tell us (whether) we will have to renegotiate or not." Greece's second bailout would impose a 21% loss on private bondholders, but many economists believe a 50% loss is necessary to make the country's debt viable. The FT reported yesterday that seven eurozone states are demanding private creditors take a bigger haircut on Greek holdings.

EU's Barroso calls for fiscal stimulus. European Commission president Jose Manuel Barroso urged euro-area members who "have fiscal space available" to "explore it" in order to boost growth, a tack not likely to sit well with Germany, who believes austerity is the only way to solve the debt crisis. Barroso also said that deeper euro-zone integration was necessary before he'd consider jointly underwritten EU bonds.

Redemptions pound huge hedge fund. Shares of U.K. hedge fund Man Group (OTC:MNGPF) fell 19% in London after it said AUM fell 8% to $65B despite record fund sales. Redemptions shaved $2.6B off the total; negative performance another $1.5B; and a stronger dollar (vs. euro and aussie) drove AUM down $1.9B. The drop underscores how volatile markets are eroding AUM at hedge funds and other asset managers.

Euro banks innovate. With European banks' unsecured debt being shunned, and covered bonds - backed by mortages and high-quality loans - limited by regulators, banks have begun floating "quasi-covered bonds" - backed by a revolving pool of collateral including stocks and ETFs. They're also increasingly using "collateral swaps" - in which banks trade assets with insurers or pension funds in exchange for government debt.

Cautious Fed nixes bank buybacks. Sources say the Fed is pushing back against U.S. banks that have approached it recently seeking approval for additional or accelerated stock buybacks. Buybacks are a temptation given the steep decline in bank shares in recent weeks, but with higher capital requirements and expectations of ugly Q3 earnings, regulators are exercising caution.

Small signs of a housing uptick. The "shadow inventory" of foreclosed or seriously delinquent homes fell by 0.3M Y/Y in July, to 1.6M. The total supply of homes for sale now stands at 8.4 months, down from 11 months a year ago. And a recent survey found the percentage of consumers who think now is a good time to buy a home bounced back strongly in September.

Rough IPO market. IPOs are having their worst quarter since Q2 2009, with 71% of offerings trading below their issue prices, and total new issue volume down 58% Y/Y. There are still 330 deals in the pipeline for i-banks to eventually collect fees on, but the current environment is driving many companies to delay going public. And things are equally bad overseas: In Hong Kong, the world's biggest IPO market, $4.5B of deals were pulled last week.

iPhone 5 on Oct. 4? Apple on Tuesday invited reporters to a "Let's talk iPhone" event on Oct. 4, widely expected to be the much-anticipated iPhone 5 launch, although Cupertino would be an unusual location to do so. Sources say the new model will have a bigger touch screen and 8-megapixel camera; will have some serious voice-control features; and will be fully compatible with iCloud.

Today's Markets
Asia: Japan +0.1%. Hong Kong -0.7%. China -0.9%. India -0.4%.
Europe at midday: London -0.2%. Paris +0.3%. Frankfurt -0.1%.
Futures at 7:00: S&P +0.81%. 10-yr +0.02%. Euro +0.62% vs. dollar. Crude -0.17% to $84.31. Gold +0.29% to $1657.25.

Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods
8:30 Fed's Hoenig: 'National debt, deficits and too big to fail'
10:30 EIA Petroleum Inventories
1:00 PM Results of $35B, 5-Year Bond Auction
2:40 PM Fed's Rosengren: Swedbank Economic Outlook Seminar
5:00 PM Bernanke: 'Lessons from Emerging Market Economies'

Notable earnings before Wednesday's open: ATU, DRI, FDO

Notable earnings after Wednesday's close: MOS

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