Markets soar on QE3. Global equity and commodity markets have continued to bask in the glow of the lights at the Fed's money printing factory after Ben Bernanke yesterday pledged to buy $40B of mortgage-backed securities a month until unemployment improves. Not surprisingly, though, the dollar has taken a dive, while Treasurys have been punished as well. By making the asset purchase program open-ended, the onus now falls onto the hawks to assemble the votes to end it. QE could be Fed policy for a very long time.
ECB refutes report of IMF talks about €300B rescue for Spain. The ECB has denied a Dutch report that the bank is negotiating a €300B rescue package for Spain with the IMF that would open the way for the central bank to buy the country's sovereign debt. The speculation comes from Het Financieele Dagblad, which didn't mention whether any Spanish government representatives were involved in the talks, although it did say that Eurozone finance ministers were due to discuss the plan at a meeting in Cyprus today.
iPhone may have sold out in pre-orders. Apple (AAPL) could have sold out of its initial stock of iPhone 5s just an hour after the company began accepting pre-orders for the smartphone on its Web site today. The order page initially said delivery would be on the device's launch day next Friday, but then it said that the handset would be available to ship in two weeks.
Top Stock News
BAE threatens to abandon merger over political interference. BAE Systems (BAESF.PK) will abandon its potential merger with EADS (EADSF.PK) unless the combined entity is allowed to run as a normal company free of the political interference that has dogged EADS, the FT reports. Such a scenario remains far from assured given that France and Germany control 22.5% each in EADS; under the deal their combined stakes would drop to below 10% and the only veto they would retain would be to block hostile takeovers.
SEC ends probe into Avon disclosure. The SEC is closing its inquiry into whether Avon (AVP) improperly disclosed information to analysts about bribery allegations at the company, saying it doesn't intend to recommend any enforcement action. The ending of the investigation follows a year-long probe that led to the firing of Avon's former vice chairman, Chuck Cramb. Citigroup says the agency's decision removes a large overhang on shares, although there's still the small matter of the inquiry into the allegations themselves.
RBS announces IPO of £3B insurance unit. RBS (RBS) plans to sell 25% of its Direct Line insurance unit in a London IPO as part of the conditions of its £45.5B bailout in 2008. Analysts reckon Direct Line could be valued at £3B, although the portents aren't great after German insurer Talanx this week withdrew its IPO for the second time in three months due to a disagreement with potential investors over price.
Home Depot to close big box outlets in China. Home Depot (HD) plans to shut all seven of its big box outlets in China and cut 850 jobs, leading to a $160M charge in Q3. "China is a do-it-for-me market, not a do-it-yourself market, so we have to adjust," the company said, although the country's slowing economy is also not helping. Home Depot will now focus on online and specialty stores in China.
SEC probes whether firms traded on information from Paulson. The SEC has sent subpoenas to investment firms that attended a meeting in July 2008 with Henry Paulson as part of a probe into whether the attendees traded on the information the then-Treasury Secretary shared, the WSJ reports. That includes Paulson's possible suggestion that the government was willing to rescue Fannie Mae and Freddie Mac. Participants included GSO, now part of Blackstone (BX), and Taconic.
Top Economic & Other News
House OKs $500B spending bill. The House yesterday passed a $500B bill that will finance federal operations until March at current spending levels in what will probably be the last major piece of legislation until after the election. The Senate is expected to approve the bill next week. Separately, the government reported an 11-month budget deficit of $1.16T, down from $1.23T last year.
CPI expected to have increased in August. Inflation data for August is due out this morning, with economists expecting that CPI rose 0.5% on month after being flat in July, driven by higher gasoline prices. On year, inflation is seen at +1.7%. Core prices are forecast at +0.2% on month and +2% on year. "As long as core is close to 2%, it is basically neutral for the Fed," says HSBC's Ryan Wang.
Japan remains pessimistic. The Japanese government has lowered its economic assessment for the second consecutive month, saying the recovery "appears to be pausing due to a deceleration of the world economy." Not helping is the strong yen, which today prompted Finance Minister Jun Azumi to say that he'll "take decisive steps when it is deemed necessary," and that he wants the Bank of Japan to act as well at "the appropriate time."
Chinese workers keep jobs despite slowdown. China's weakening economy hasn't prompted the huge layoffs that occurred in previous slowdowns. Explanations include: the economy is not doing too badly; the service sector is able to take up the slack; the larger size of the economy enables it to better withstand the slowdown; and companies recognize that they cut jobs too quickly in the global crisis, when 20M factory workers were fired.
In Asia, Japan +1.8%. Hong Kong +2.9%. China +0.6%. India +2.5%.
In Europe, at midday, London +1.7%. Paris +2.1%. Frankfurt +1.5%.
Futures at 7:00: Dow +0.5%. S&P +0.5%. Nasdaq +0.6%. Crude +1.7% to $100. Gold +0.3% to $1777.20.
Today's economic calendar:
8:30 Consumer Price Index
8:30 Retail Sales
9:15 Industrial Production
9:55 Reuters/UofM Consumer Sentiment
10:00 Business Inventories
1:00 PM Fed's Lockhart: 'Employment Consequences of the Great Recession'
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