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Chinese manufacturing sector remains in contraction. September's official PMI of 49.8 improved from last month's 49.2, but fell short of expectations for 50.1. The HSBC PMI read - which represents smaller companies less likely to benefit from state ownership/support - continues to show greater weakness, coming in at 47.9, up from August's 47.6.

Xstrata board recomends approval of Glencore takeover bid. The approval of the $33B offer also includes a controversial $232M retention package for Xstrata management, but shareholders will be offered the opportunity to vote for the sale with or without the bonuses - meaning the deal can go through even if the incentive payments are rejected. Investors must be kept happy since as little as 16.5% of shareholders can block the merger due to Glencore being unable to vote its 34% stake.

Spain to miss budget targets. The 2013 budget plan envisions a deficit/GDP ratio of 7.4% for 2012, well above the 6.3% EU-approved target thanks to the costs of aiding the staggering banking system. For good measure, the 2011 deficit is revised to 9.44% from 8.96%. Friday's stress test results revealed the banking system will need about a €60B recapitalization, well less than the €100B requested from the EU. The government believes it can whittle that €60B down to €40B through the fancy footwork of a "bad bank."

Top Stock News
Coventry Healthcare investors sue to block acquisition by Aetna. "The board's sale process was woefully inadequate," say lawyers for three pension funds seeking to stop the $5.6B takeover. The 20% premium for Coventry (CVH) pales to premiums as high as 43% in other recent deals for insurers, according to the lawyers, who contend CEO Allen Wise didn't shop around for the highest price, instead spending four months negotiating with Aetna (NYSE:AET) CEO Mark Bertolini before notifying the board.

Oracle takes aim at the cloud. Oracle (NYSE:ORCL) is expected to unveil the first new version of its flagship database program in five years at the OpenWorld conference today. The 12c database is designed to present an alternative to the no-hardware approach to cloud computing offered by competitors Salesforce.com (NYSE:CRM) and Workday (NYSE:WDAY).

"Boeing: Hands Off My Healthcare." Boeing (NYSE:BA) workers are expected to turn down today the company's current offer on a contract covering 23K members of the Society of Professional Engineering Employees in Aerospace (Speea), though a second vote would be required to authorize a strike. Neither Seattle officials nor analysts foresee a strike, but Speea puts the chances at about 35%. The company currently has a backlog of more than 4K orders.

Perverse bank debt rule may be on way out. FASB is expected to formally propose by year's end the elimination from net income calculations the debt valuation adjustment (DVA) in which banks with worsening credit spreads are able to report a boost to income (conversely, improving spreads create a loss). The rule has been behind big quarterly swings in reported numbers at the big banks, and Bank of America (NYSE:BAC) has warned of a $1.9B hit to Q3 earnings as a result of its narrowing spreads. "(It's) one of the more ridiculous concepts that's ever been invented," says Jamie Dimon.

Toyota and Honda bounce back. Big jumps from Toyota (NYSE:TM) and Honda (NYSE:HMC) are forecast to be the driving factors behind a healthy gain in U.S. auto sales due to be reported on Tuesday. A year ago this time, both automakers were still reeling from earthquake-related disruptions.

Cashing in on J.C. Penney overhaul. The shareholders have yet to see benefit, but suppliers like Leggett & Platt (NYSE:LEG) - hired to help refurbish J.C. Penney (NYSE:JCP) stores - have no complaints. Next up is the lucrative contract to install radio-frequency identification (RFID) tags on every item in J.C. Penney's stores in which R.R. Donnelly & Sons (NASDAQ:RRD) and one other manufacturer are battling it out.

Top Economic & Other News
Eurozone manufacturing sector remains in deep slump. September's PMI comes in at 46.1, up from August's 45.1, but in contraction territory for the 14th consecutive month. France is notably weak, its PMI falling to a 41-month low of 42.7, just a hair higher than Greece. Germany and Spain, however, rise to 6-month highs of 47.4 and 44.5, respectively.

Eurozone unemployment hits a record. Eurozone unemployment was 11.4% in August (June and July were revised higher to 11.4% as well), the highest since the data series began in 1995. "(It) still has not reached its peak," says Thomas Costerg of Standard Chartered. "A worrying trend is that the number of unemployed is now also expanding in core countries like Germany, which had been rather sheltered up to now."

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Today's Markets:
In Asia, Japan -0.8% to 8797. Hong Kong closed. China closed. India +0.3% to 18827.
In Europe, at midday, London +1.1%. Paris +1.5%. Frankfurt +1.3%.
Futures at 7:00: Dow +0.5%. S&P +0.4%. Nasdaq +0.6%. Crude -0.5% to $91.71. Gold -0.2% at $1770.45.

Today's economic calendar:
9:00 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
12:00 PM Fed's Williams: ‘Capital Markets for Impact at Scale‘
12:30 PM Bernanke: Monetary Policy

Notable earnings before today's open: FGP

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Source: Wall Street Breakfast: Must-Know News