Stocks fell despite merger news, a better-than-expected earnings report from Wal-Mart (WMT), and data that showed a decline in weekly jobless claims. Wal-Mart is one of only 5 Dow stocks moving higher after the retailer reported a quarterly profit of 84 cents, which beat Street estimates by 3 cents. On the economic front, the latest weekly jobless claims showed some improvement. According to the Labor Department, filings fell by 12,000 to 502,000 in the week ended November 7. Economists were looking for a smaller 4,000 drop. Meanwhile, the tech sector was in focus on news H-P (HPQ) made a bid for 3Com (COMS) and Advanced Micro (AMD) rallied on news of a long-awaited settlement with Intel (INTC).

However, the tech-heavy NASDAQ gave up its early gains and weakness in the commodities markets sent many metals, mining and energy names lower. Crude oil is down $2.52 to $76.76 on bearish weekly inventory data. Gold lost $8.50 to $1106.10 after the buck bounced a bit higher against the euro.

Bullish Calls:

Watts Water Technology (WTS): "It is the only water stock that I have been recommending… and remember, I think that most of them cannot make money… this one can make money."

The Dow began the month of October at 9,712 and finished the month of October at EXACTLY 9,712. Now I don’t want to say the market is manipulated but… No, I’ve got nothing, there are no buts - the market is totally manipulated! Either that or you believe that the random outcome of tens of millions of traders around the globe trading hundreds of billions of shares of stock would just so happen to begin and end the month within .50 after going as low as 9,378.77 (on the 5th) and as high as 10,157.94 (on the 21st). So that is literally a 1 out of the 779-point swing coincidence to hit that 9,712 nail on the head.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our ETF Trends Report to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)

Stocks are trading broadly lower despite a batch of better-than-expected earnings and economic news Friday. Microsoft (MSFT) is up 5.3 percent and helped lift both the Dow and the NAZ early after the software giant reported a quarterly profit of 40 cents per share on $12.92 billion in revenues. Analysts were expecting 32 cents on 12.32 billion.

Better than expected results from Amazon.com (AMZN), Ingersoll Rand (IR), Honeywell (HON), Fortune Brands (FO), and Whirlpool (WHR) also helped set a positive tone for morning trading.

The Dow jumped 132 points Thursday as there was a bout or renewed optimism about earnings which continued to escalate. Travelers (TRV) led the benchmark, soaring 7.7% on Q3 profits which more than quadrupled. Bellwether stocks like 3M (MMM) and McDonalds (MCD) also beat up analysts' estimates, while Amazon (AMZN) impressed after the bell as their Kindle eBook reader is proving a real winner and outselling rivals. Wells Fargo’s (WFC) shares rebounded after investors took another look at the bank’s third-quarter earnings from mortgage servicing rights.

Today’s highlight thus far earnings wise has been Microsoft (MSFT) who, after the rollout of its new Windows 7, came in with an 8c beat on Street EPS estimates. Ingersoll-Rand (IR), Whirlpool (WHR), Honeywell (HON) and Schlumberger (SLB) have also reported better than expected numbers for Q3. So the song remains the same and it looks like tech will be well supported Friday. Interesting that American Express (AXP) said customers reduced spending 11% in the third quarter, sending its quarterly net down 21%. Commercial lender CIT (CIT) is liable to be bid up on a DJ News report that they have reached a tentative agreement with the devil, aka Goldman Sachs (GS), over a disputed $3 billion financing agreement. The S&P 500 is now trading at its highest level relative to reported earnings in the last five years.

Data dumped a few inches of reality rain on the earnings plastic surgery laden beauty parade Tuesday. Further positive “earnings” results failed to sustain a move higher in risky assets (equities). We seem to have reached a point where traders have become so saturated with high expectations (which are miles north of what the laggard “analysts” had projected) that even “good” numbers are greeted with a poor reaction.

Thus far Wednesday, on a hump day, the earnings reports have been a far more mixed bag with the biggest drag being Boeing (BA), after reporting chunky charges of $3.5 billion due to delays in the unfortunately named 787 Dreamliner and 747-8 jumbo jets, while Eli Lilly (LLY) beat estimates. The big banks again have profited courtesy of the taxpayer giving them free money to play with as Wells Fargo (WFC) and Morgan Stanley (MS) (despite a 94% drop in profits) both beating analysts dumb and dumber’s (guess)timates. They’d have been closer using a dart board.

• King: Break up the banks! Bank of England Governor Mervyn King stepped up his call to break apart Britain's largest banks, saying more stringent capital requirements won't shield taxpayers from having to bail out more too-big-to-fail banks in the future. "The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history," King said in a speech (.pdf) late Tuesday. His comments were at odds with those of Chancellor of the Exchequer Alistair Darling, who said yesterday focusing on capital rules may be enough to ward off future crises. Meanwhile, on this side of the Atlantic, Paul Volcker keeps pounding the desk to split up banks, but no one's listening.
• State Street slapped with fraud suit. The California AG's office charged State Street (STT) with fraud Tuesday, accusing it of bilking the state's two largest pension funds - Calpers and Calstrs - of $57M, and seeking $200M in overcharges and penalties (complaint (.pdf)). The lawsuit stems from an inquiry launched after a whistleblower claimed State Street secretly and substantially marked up the price of its currency trades. State Street beat Q3 earnings estimates Tuesday, but shares dived 8.4% on news of the lawsuit and a sobering outlook.
• Yahoo defies bears. Shares of Yahoo (YHOO) are up 4.6% premarket after the internet giant beat Q3 earnings estimates handily with the help of some serious cost cutting ($0.13/share vs. $0.06), while revenue was steady from last quarter at $1.13B. "There's a change occurring in Yahoo," CFO Tim Morse said on Yahoo's earnings call (transcript), "that will value that kind of work - that good old-fashioned, get-your-hands-dirty kind of find ways to take costs down or make sure that they don't go up as much as they otherwise would have - type work." Analysts were impressed with the quarter, but said the real test of Yahoo's massive branding initiative would come in Q4. Bernstein's Jeffrey Lindsay summed it up: "The patient is off life support and back in the recovery ward. But it is certainly not out playing soccer again."
• Shedding light on the dark pools. In an effort to bring transparency to famously opaque "dark pool" off-exchange trading cliques on which Wall Street firms execute some of their largest trades, the SEC will reportedly today propose slashing the percent of daily volume in a company's shares that can be executed on the systems before quotes must be publicized to 0.25% from 5%. The move would force dark pools to either bring their prices in line with open markets, or risk losing their order flow. Trading executives warn sweeping rule changes could ultimately hurt the investors regulators are trying to empower.
• AT&T sues LCD makers over price fixing. AT&T (T) sued Samsung Electronics, LG Display (LPL), AU Optronics (AUO) Corp. and other LCD manufacturers, claiming they colluded to fix prices of panels sold in the U.S. "The conspiracy included communications and meetings in which defendants agreed to eliminate competition and fix the prices of LCD panels that were ultimately incorporated into LCD products that they knew would be sold in California and the U.S.," according to the complaint.
• Logi offer: does it make sense? An obscure hedge fund - logi Energy - said it offered to buy $1B of CIT Group's (CIT) debt, but wouldn't identify its source of capital. Logi said the deal could give CIT "wiggle room" as it works to sidestep bankruptcy. CIT wouldn't comment on whether it was seriously considering the offer.
• Volvo sale hits snag. Sources say China carmaker Geely's $2B attempt to buy Ford's (F) Volvo unit is in danger of stalling over disagreements about intellectual property rights. The impasse centers on Ford's concerns about sharing its proprietary technology and plans for new products.
• Morgan mulls giving away Crescent. Sources say Morgan Stanley (MS) may hand over its Crescent Real Estate Equities unit to Barclays (BCS), to whom the business owes $2B which comes due Nov. 2. Morgan bought Crescent for $6.5B in August 2007, and had planned to put its assets into real estate investment funds, but was left holding the bag when markets seized up.
• IRS watchdog says homebuyer plan fraught with fraud. The IRS's internal watchdog will warn the agency again about fraud in the multibillion dollar homebuyer tax credit program. The IRS faces significant challenges in preventing individuals from scamming the tax credit program.
• JPMorgan, Goldman cornering the M&A market. According to a study by Bloomberg News, JPMorgan (JPM) edged out Goldman Sachs (GS) in M&A advisory fees ($1.26B vs. $1.22B) for the first time since 2000. By deepening relationships with corporate clients, the two have created a deep moat around M&A counselling. "It's going to be very difficult for upstart or broad-based firms to come in and usurp what many believe are the insurmountable leads that Goldman and JPMorgan have over competitors," one analyst says.
• Business spending perks up. Industrial bellwether Caterpillar (CAT) joined the ranks of those who say the worst is behind us, as corporate buyers slowly begin reinvesting in their businesses. While Caterpillar's sales were 44% lower than a year ago, CFO David Burritt said he sees "encouraging signs that indicate a recovery may be under way," and predicted sales could rise 10-25% next year (read Caterpillar's Q3 earnings call transcript). Business spending accounts for about 9.5% of U.S. GDP - a fraction of the 68.2% accounted for by consumer spending - but still a potential catalyst for recovery.
• Get ready for pay as you play internet. Internet service providers including AT&T (T) and Time Warner Cable (TWC) are considering returning to usage-based pricing for internet, amid a surge in traffic as more people watch videos online, and after a push by the FCC to force ISPs to treat all web traffic equally. "Some type of usage-based model, for those customers who have abnormally high usage patterns, seems inevitable," an AT&T spokesman said, declining to provide details on the company's exact plans.

Earnings: Wed. Before Open

• Air Products and Chemicals (APD): FQ4 EPS of $1.14 beats by $0.02. Revenue of $2.13B (-21.6%) in-line. (PR)
• AirTran (AAI): Q3 EPS of $0.08 in-line. Revenue of $597M (-11.3%) vs. $600M. Shares -0.9% premarket. (PR)
• Allegheny Technologies (ATI): Q3 EPS of $0.01 misses by $0.02. Revenue of $698M (-49.9%) vs. $738M. Says the worst appears to be behind us, but many customers remain cautious due to the uncertain global economy and are keeping inventories low. Shares -8.8% premarket. (PR)
• Altria (MO): Q3 EPS of $0.48 beats by $0.01. Revenue of $4.32B (+0%) vs. $4.66B. Shares -1.4% premarket. (PR)
• Boeing (BA): Q3 EPS of -$2.23 misses by $0.11. Revenue of $16.69B (+9.1%) vs. $17.16B. Sees full-year EPS of $1.35-1.55 vs. $1.54 consensus. "The 787 cost reclassification and the 747 charge for increased costs and difficult market conditions clearly overshadowed what continues to be otherwise solid performance across our commercial production programs and defense business, We look forward to getting the 787 and 747-8 in the air soon and moving forward with flight test and certification for these two important programs." Shares -2.5% premarket. (PR)
• Deutsche Bank (DB): Q3 net income of €1.4B vs. consensus of €811M and last year's €435M. Pretax profit of €1.3B vs. consensus of €1.19B. Tier 1 capital ratio rose to 11.7% from 11% in Q2. Shares -2.3% premarket. (Bloomberg)
• Continental (CAL): Q3 EPS of $0.02 beats by $0.08. Revenue of $3.32B (-20.2%) in-line. (PR)
• Elan (ELN): Q3 EPS of -$0.06 beats by $0.07. Revenue of $399M (-19.5%) vs. $382M. (PR)
• Eli Lilly (LLY): Q3 EPS of $1.20 beats by $0.18. Revenue of $5.56B (+6.8%) vs. $5.41B. Gross margin as a percent of total revenue increased by 3.7% to 81.1%. Shares +0.4% premarket. (PR)
• FLIR Systems (FLIR): Q3 EPS of $0.38 beats by $0.03. Revenue of $286M (+3.2%) vs. $281M. Shares +2.9% premarket. (PR)
• Freeport-McMoRan Copper & Gold(FCX): Q3 EPS of $2.07 beats by $0.73. Revenue of $4.14B (-10.2%) vs. $4.24B. Reinstates dividend due to strong performance. Shares -0.1% premarket. (PR)
• KeyCorp (KEY): Q3 EPS of -$0.50 misses by $0.09. Takes a $733M provision for loan losses, which KEY says drove the miss. Average deposits were +6% (+$3.6B). Shares -4.7% premarket. (PR)
• Knight Capital Group (NITE): Q3 EPS of $0.32 misses by $0.07. Revenue of $300M (+24.5%) vs. $282M. Shares -6.4% premarket. (PR)
• Manpower (MAN): Q3 EPS of $0.26 beats by $0.09. Revenue of $4.19B (-26%) vs. $3.95B. Sees Q4 EPS of $0.17-0.27 vs. $0.28. "We continued to experience sluggish demand for our services as the labor markets throughout the world were hampered by lack of demand for companies' products and services... the uptick in revenue is muted at this time compared to previous recoveries." Shares -5.3% premarket. (PR)
• Morgan Stanley (MS): Q3 EPS of $0.38 beats by $0.11. Revenue of $8.7B vs. $6.99B. Assets under management $386B vs. $483B last year. Declares $0.05 quarterly dividend. Shares +0.9% premarket. (PR)
• Northern Trust (NTRS): Q3 EPS of $0.72 misses by $0.12. Revenue of $928M (-1.2%) vs. $985M. Shares -5% premarket. (PR)
• Northrop Grumman (NOC): Q3 EPS of $1.29 beats by $0.11. Revenue of $8.73B (+4.1%) vs. $8.58B. (PR)
• Omnicom Group (OMC): Q3 EPS of $0.53 in-line. Revenue of $2.83B (-14.4%) in-line. (PR)
• Penn National Gaming (PENN): Q3 EPS of $0.33 misses by $0.02. Revenue of $620M (+0.4%) vs. $642M. Shares -8.2% premarket. (PR)
• St. Jude Medical (STJ): Q3 EPS of $0.59 beats by $0.01. Revenue of $1.16B (+7%) in-line. Sees Q$ EPS of $0.61-0.63 vs. $0.66. "We are lowering our expectations for our fourth quarter results to accommodate the issues we are experiencing from a limited portion of our customer base in the U.S., but we are confident that our long term growth program is on track." Shares -0.9% premarket. (PR)
• U.S. Bancorp (USB): Q3 EPS of $0.30 beats by $0.03. Revenue of $4.25B (+2.2%) vs. $4.12B. Says credit deterioration moderated somewhat. Shares +0.8% premarket. (PR)
• Wells Fargo (WFC): Q3 EPS of $0.56 beats by $0.19. Revenue of $22.47B (+116.5%) vs. $21.63B. Q3 chargeoffs of $5.1B, up from $4.4B in Q2. Sees credit losses peaking in 2010, "with consumer losses potentially peaking in first half of the year and gradually declining, absent further economic deterioration." Shares -1% premarket. (PR)

Earnings: Tue. After Close

• Amylin Pharmaceuticals (AMLN): Q3 EPS of -$0.19 beats by $0.10. Revenue of $211M (-3%) vs. $219M. Shares -1.1% AH. (PR)
• Canadian National Railway Company (CNI): Q3 EPS of C$0.94. Revenue of C$1.85B (-18%) in-line. Shares -1.6% AH. (PR)
• C.H. Robinson Worldwide (CHRW): Q3 EPS of $0.57 beats by $0.01. Revenue of $1.95B (-16%) vs. $1.96B. Shares -0.8% AH. (PR)
• Cree (CREE): FQ1 EPS of $0.30 beats by $0.08. Revenue of $169M (+20%) vs. $165M. Sees Q2 EPS of $0.28-0.30 vs. $0.23 and revenue of $180M-190M vs. $173M. Shares +3.6% AH. (PR)
• Gilead Sciences (GILD): Q3 EPS of $0.78 beats by $0.11. Revenue of $1.8B (+31%) vs. $1.75B. Shares -2.2% AH. (PR)
• Infinera (INFN): Q3 EPS of -$0.03 beats by $0.09. Revenue of $83M (+3%) vs. $80M. Shares +2.5% AH. (PR)
• Intuitive Surgical (ISRG): Q3 EPS of $1.64 beats by $0.16. Revenue of $280M (+19%) vs. $258M. Shares -5.9% AH. (PR)
• Nabors Industries (NBR): Q3 EPS of $0.18 beats by $0.02. Revenue of $804M (-44%) vs. $820M. Shares flat AH. (PR)
• Polycom (PLCM): Q3 EPS of $0.31 misses by $0.01. Revenue of $243M (-16%) vs. $236M. Shares -5.2% AH. (PR)
• SanDisk (SNDK): Q3 EPS of $0.75 beats by $0.49. Revenue of $935M (+14%) vs. $788M. Shares +0.2% AH and halted. Updated 4:30 p.m.: Shares resume trading, +10.2% AH. (PR)
• Seagate Technology (STX): FQ1 EPS of $0.58 beats by $0.11. Revenue of $2.66B (-12%) vs. $2.62B. Shares -2.9% AH. (PR)
• SLM Corp. (SLM): Q3 EPS of $0.26 beats by $0.22. Net interest income after provision for loan losses of $204M (-29%). Shares +7.8% AH. (PR)
• STMicroelectronics (STM): Q3 EPS of -$0.23 misses by $0.14. Revenue of $2.28B (-16%) vs. $2.25B. Shares +3.7% AH. (PR)
• Stryker (SYK): Q3 EPS of $0.69 in-line. Revenue of $1.65B (+1%) vs. $1.62B. Shares +3.5% AH. (PR)
• Tupperware (TUP): Q3 EPS of $0.54 beats by $0.12. Revenue of $514M (flat) vs. $486M. Raises full-year EPS guidance to $2.84-2.89 from $2.59-2.64, vs. $2.73. Shares +4.5% AH. (PR)
• Walter Industries (WLT): Q3 EPS of $0.45 beats by $0.18. Revenue of $278M (-10%) vs. $223M. Shares +1.7% AH. (PR)

Today's Markets

Overseas markets sustained losses Wednesday. U.S. futures moved lower overnight.

The Rayno Report (raynoreport), in conjunction with our contributing partner Raygent Associates (raygentassociates), tracks the biotech market and a model portfolio. The broadly diversified biotech ETF -- IBB -- was up 16%, moving from 70 to 81 in the three-month period. About 50% of the IBB holdings are large cap companies such as Amgen (AMGN), Celgene (CELG), Genzyme (GENZ), Gilead (GILD) and Teva (TEVA). The IBB was flat for the year as of July 1, so all the gains came in Q3.

The Dow broke out to a new 52-week high yesterday with the S&P 500 not far behind it in light trading. The major support came from tech names after upgrades by Deutsche Bank of the semi conductor sector and Barclays of the hardware space while the VIX declined to 23, a one-year low.

More importantly and raising a few eyebrows today is news that the day before they report earnings, Goldman Sachs (GS) was cut to Neutral by the now independent uber bank analyst Meredith Whitney. Recall her “buy” call just before last quarter’s results was right on the money (and of course her now famous call on Citibank (C) in 2007 when she foresaw a dividend cut and said they were in big trouble). Expect some softness on the back of this as when the Laura Croft of financial analysts speaks, folks listen.

The U.S. equity market snapped a three-day losing streak overnight, buoyed by takeover activity in the drug and technology sectors (although the financials, with a 3.4% gain, were the strongest sector on the day). Strong gains were also seen throughout Europe, especially in Germany following the outcome of the weekend’s election. The DAX rose 2.8% to close above the prior high seen on September 17. So a busy start to what promises to be a very busy week, climaxing in U.S. non-farm payrolls on Friday as stability in the jobs market and gains in income are essential if consumption is to recover.

Today the S&P Case-Shiller US Composite 20-City Index for July outperformed expectations. It rose 1.26% month-over-month in seasonally adjusted terms, the biggest monthly gain since October 2005 and the second straight monthly increase, signalling the housing slump might be over or at the very least on its way to being over. This still leaves prices down 13.3% year-over-year, or 27.4% off their 2007 peak, but is a good sign nevertheless. With the notable exception of a sizeable 1.8% price drop in Las Vegas (where prices are off 55.2% from their peak) prices were up pretty much everywhere. Needless to say builders -- including Beazer (BZH) and Hovnanian (HOV) -- are up. However, a weaker than expected read on the U.S. Consumer Confidence number (53.1 versus expected 57) has seen stocks dip back into the red.

US stocks closed down a touch last night, perhaps expressing a modest degree of disappointment with the internals of the US dataflow. Whilst initial jobless claims dropped to 545k, it is difficult to read much into this number given the potential impact of the Labour Day holiday. What I can say is that the initial claims numbers remain nowhere near the low 400k levels that would be needed to confidently signify a return to stability in the job market (although the first positive payrolls numbers could well be recorded a little sooner than might be suggested by the claims data). The continuing claims data has adopted a volatile saw-tooth pattern in recent weeks making interpretation equally difficult.

The housing starts and permits report was also open to mixed interpretation. For example, whilst permits rose 2.7% MoM in August, this increase was entirely driven by the volatile multi-unit category – single family starts nudged down 0.2% MoM. Still, residential construction seems likely to make a small positive contribution to GDP growth in Q3. As I’ve noted before, we’re in no hurry to see a rapid rebound in construction activity given the significant levels of inventory that remains on the market. Finally, the headline Philly Fed manufacturing index was certainly flattering. Whilst the business conditions index rose almost 10 points to 14.4, a level last exceeded (temporarily) in June 2007, much of the detail actually looked slightly weaker this month. For example the new orders index nudged down 0.9 points to 3.3 and the employment index was 1.4 points weaker at -14.3.

In July, Elan unveiled a deal with J&J that looked to be the answer to all of its debt problems, as J&J promised to invest $1bn in the group in return for early stage Alzheimer’s products and a stake in Elan. J&J also agreed to contribute to the development of its experimental Alzheimer’s drug bapineuzumab (J&J comes riding to Elan’s rescue, July 2, 2009).

• Citigroup looks to cut U.S. stake. Sources say Citigroup (C) is working on a plan to pare the government's 34% stake in the bank, including a multibillion-dollar public stock sale followed by a buyback of some of the government's shares. Citi spoke briefly with the Treasury over the weekend, which said it has no objections as long as the bank first raises offsetting capital. Any move would give a clearer picture of how the government plans to balance its desire to wind down financial system intervention against its continued concerns over the health of the banking industry.
• Judge blocks $33M settlement. U.S. District Court Judge Jed Rakoff told the SEC and Bank of America (BAC) their proposed $33M settlement over the lack of disclosure of $3.6B in bonuses just before BofA's merger with Merrill Lynch was "neither fair, nor reasonable, nor adequate." Judge Rakoff demanded the case be tried in court, calling their proposed consent judgement "a contrivance designed to provide the S.E.C. with the facade of enforcement and the management of the Bank with a quick resolution of an embarrassing inquiry - all at the expense of the sole alleged victims, the shareholders." (see Judge Rakoff's order (.pdf))
• Obama says they can. Speaking to Wall Street Monday, U.S. President Barack Obama told financial leaders to expect new regulations. Potential new rules include: a new consumer financial protection agency, higher capital requirements for banks and a systemic risk regulator. Obama also said that the necessity for bailouts are waning, and that the financial sector is showing improvement. Still,the president stressed that the lessons from the past year must not be ignored.
• Lacker says bank reforms miss mark. Richmond Fed president Jeffrey Lacker pushed back against proposed changes to financial system regulation, saying in a speech Monday that creating an apparatus for the government to 'resolve' big financial firms without forcing them into bankruptcy could weaken market discipline and lead to greater volatility. "The leading proposals before Congress concentrate almost exclusively on expanding government protection and regulation, but I believe we would be better off placing greater reliance on market-based incentives for prudent risk management," Lacker said.
• Lilly slashes costs, jobs. Eli Lilly (LLY) announced Monday it will cut company costs up to $1B, including eliminating 5,500 jobs over the next two years. The company plans to restructure several of its business units in response to generic competition to its antipsychotic drug Zyprexa, as well as its 2008 purchase of ImClone Systems.
• Avaya takes the call. Nortel’s corporate networking unit will be acquired by privately-owned Avaya for $915M, over Verizon's (VZ) objections. Nortel, which went into bankruptcy in January, decided selling off its main businesses was a better option for creditors than trying to reorganize. The sale follows Ericsson AB's (ERIC) purchase of Nortel's wireless business in July of this year.
• EU wants details on GM loan. The EU Commission has asked Germany for the country's formal plan to inject €3B ($4.38B) in loan gurantees to GM's European Opel unit. Meanwhile, a meeting today between German and European government officials over state aid for the new company is unlikely to produce any results because the buyer, Magna (MGA), has yet to submit a detailed business plan. The turnaround may include cutting over 10,000 jobs.
• So goes the year. Today marks one year following the collapse of Lehman Brothers, and risk appetite is back, with five U.S. banks recently reporting large gains from their trading desks. While some argue that recovery is clearly on the way as China's economy grows, others warn investors should not count on government bailouts for future growth.
• Elan, J&J fix JV. Elan (ELN) dropped the value of its $1.5B deal with Johnson & Johnson (JNJ) by $115M after a ruling earlier this month that its terms violated Elan and Biogen Idec's (BIIB) partnership over their MS drug Tysabri. Under the original deal, J&J had the option of financing Elan's purchase of Biogen's stake in Tysabri under certain circumstances; the new deal eliminates this clause.
• ING hits roadblock on government aid. Shares of ING Group (ING) fell 3.8% in Amsterdam following media reports saying European Competition authorities will reject the Dutch government's €22B guarantee of ING's U.S. Alt-A portfolio over concerns the terms may be too sweet. Analysts say ING could have to pay €1-1.7B more if the deal is rejected.
• Genworth seeks $500M: Genworth Financial (GNW) fell in AH trading Monday after saying it's looking to raise $500M in an offering led by Goldman Sachs (GS), BofA Merrill Lynch (BAC) and Deutsche Bank (DB). Shares will be diluted as a result, but some analysts say after five consecutive quarterly losses, totaling more than $2B, it's a good sign that the company is in the position to issue at all.

Today's Markets

Overseas stocks posted modest gains Tuesday, while U.S. futures are down a drop ahead of today's retail sales data (full calendar).

• Asia: Nikkei +0.15% to 10,218. Hang Seng -0.31% to 20,866. Shanghai +0.23% to 3,034. BSE +1.48% to 16,454.
• Europe at midday: London +0.2%. Paris +0.3%. Frankfurt -0.1%.
• Futures at 7:00: Dow -0.1% at 9542. S&P -0.1% to 1042. Nasdaq -0.1%.
  Crude +0.6% to $69.28. Gold flat at $1001. 30-year Tsy -0.08%.
  Euro -0.1% vs. dollar. Yen -0.5%. Pound -0.5%.

Tuesday's Economic Calendar

7:45 ICSC Retail Store Sales
8:30 Producer Price Index
8:30 Retail Sales
8:30 Empire State Mfg Survey
8:55 Redbook
10:00 Business Inventories
5:00 PM ABC Consumer Confidence Index

• NYSE up 36.2 (0.5%) to 6,879.98.
• DJIA up 21 (0.2%) to 9,627.
• S&P 500 up 6.6 (0.6%) to 1,049.
• Nasdaq up 11 (0.5%) to 2,092.

GLOBAL SENTIMENT

• Escalating trade tensions. On Friday, the U.S. announced a tariff on Chinese tires in a move some say may actually be a precursor to a campaign to reduce trade barriers. Each of the four presidents that served before Obama moved to protect domestic industries early in their term before making a push for freer trade. Whatever the end goal may be, China 'strongly opposes' the tariffs and said it may turn to the WTO to intervene, and yesterday announced it's initiating antidumping procedures against imported U.S. chicken and auto products.
• Obama renews push for financial reforms. Just ahead of the one year anniversary of Lehman Brothers' collapse, Obama is heading to Wall Street to explain how the government plans to unwind its involvement in the financial sector and to renew his push for regulatory reform. Obama is expected to ask for the support of the financial community in implementing new market regulations and will call for greater global coordination on financial oversight. In conjunction with Obama's remarks, the Treasury will release a document called "The Next Phase" (.pdf), outlining ways in which emergency measures are being reduced.
• Deutsche Telekom sprints for next deal. Just days after announcing plans to merge U.K. operations with France Telecom (FTE), Deutsche Telekom (DT) is reportedly considering a bid for Sprint Nextel (S). Deutsche Telekom, a distant fourth in the U.S. market behind Sprint, Verizon Wireless (VZ) and AT&T (T), has apparently been researching a possible Sprint tie-up for over a year, but began serious due diligence three months ago. A potentially costly offer could be submitted in the next few weeks. DT -1.4%, S +10.1% premarket (7:00 ET).
• J&J renegotiates Elan deal. Johnson & Johnson (JNJ) is reportedly in talks to cut the price of its $1.5B deal with Elan (ELN), following a court order that the J&J tie-up violates a partnership between Elan and Biogen Idec (BIIB). J&J wants to reduce the deal's price tag by at least $100M, and new terms could be announced in the coming days.
• Plenty of suitors for JAL. American Airlines (AMR) and Delta Air Lines (DAL) are both said to be considering rival investments in Japan Airlines, with Delta prepared to inject up to ¥50B in a tie-up that would include code sharing on international flights. American Airlines is looking to buy equity in JAL in part to prevent it from switching over to a rival airline network, though both American and Delta also see this as a way to grow revenue from Asia. JAL is Asia's largest airline by revenue but lost $1B last quarter and is under pressure to cut costs and raise money.
• BIS: Higher taxes for larger banks. The Bank for International Settlements [BIS] published its Quarterly Review (.pdf) yesterday, expressing 'cautious optimism' on the state of the global economy but noting that interbank lending fell $812B during the previous quarter. The BIS recommended that big banks pay higher taxes to offset the disproportionately large systemic risks they pose.
• BlackRock plans internal trading platform. BlackRock (BLK) is set to create its own global trading platform, allowing BlackRock clients to conduct deals with one another through internal trades that completely bypass Wall Street. BlackRock says it's not trying to marginalize Wall Street, though the move is certainly a sign of increased resistance to paying fees for securities trades that have small margins and rely on large volumes to achieve profitability. The plan is still in early stages, and will probably be introduced for stocks first, followed by fixed income.
• Gas firms give go-ahead on Gorgon. Chevron (CVX), Exxon Mobil (XOM) and Royal Dutch Shell (RDS.A) approved development of the Gorgon liquefied natural gas project in Australia, paving the way for a venture that could earn A$300B ($258B) in gas sales to China, India and Japan in its first twenty years. The project's first phase will cost A$43B with the first LNG exports expected in 2014.
• China in power-plant talks with AES. Sovereign wealth fund China Investment Corp. is said to be in talks to take a significant minority stake in power-plant developer AES Corp. (AES). Sources said the two sides are also discussing a possible joint venture in which China Investment Corp. would contribute capital to fund AES' plans to develop power plants around the globe.
• Friday failures. Three more bank failures on Friday, bringing this year's total to 92 and costing the FDIC's insurance fund around $2B. Most of those losses come from the seizure of Corus Bank, whose 11 branches and $7B in deposits will be assumed by MB Financial (MBFI). (Read the FDIC's press releases: I, II, III)

Today's Markets

Asia closed mostly down. European markets and U.S. futures start the week in the red.

Stocks opened steady following a mixed monthly unemployment report and have been able to build modest gains by late Friday. The major averages opened steady after the Labor Department reported that the US economy lost 214,000 jobs during the month of August. The decline follows a 276,000 loss the month before (revised from 247K) and was not quite as bad as the 230,000 decline economists had predicted.

Average hourly earnings rose .3 percent, and more than the .1 percent economists expected, but the rate of unemployed increased to 9.7 percent from 9.4 percent, which was more than expectations of 9.5 percent.

Déjà vu, another up day, another down volume day, with the now almost self fulfilling spike into the close led by yet another AIG (AIG) short squeeze! This dodgy $2 bankrupt stock spiked 5% into the close and continues to lead the Dow around like an innocent puppy on a lead. This allowed the S&P 500 to close back above the psychological 1000 level. But all very suspicious and dubious. As many have noted, the rally has been led by low quality stocks, and as Jimmy Cliff once crooned, “the harder they come, the harder they fall” when the tide turns.

Gold made further gains overnight, coming close to testing $1000 at one point. There’s some talk on the screens and in the blogs about potential purchases by China as part of its reserve diversification strategy.

• Elan risks losing blockbuster drug. A federal judge ruled that Elan's (ELN) recent deal with Johnson & Johnson (JNJ) violates a collaboration with Biogen Idec (BIIB) to jointly market multiple sclerosis drug Tysabri. Elan must now alter its J&J deal by September 26, or potentially lose all its rights to Tysabri, a drug with nearly $1B in annual revenue.
• Prius' patent problem. Toyota (TM) is facing a patent-infringement claim that could potentially prevent it from exporting the Prius and other hybrid models to the U.S. The complaint was filed yesterday by closely-held Paice LLC, which already won a 2005 case that the Prius and two other hybrids used Paice inventions.
• Beijing to raise quotas on foreign investors. Chinese authorities late Friday proposed changes to current restrictions on foreign investment, including raising the ceiling on investments by individual institutions by 25% to $1B, and shortening the duration of lock-ups to one-year from three. The announcement, which came after Shanghai's close, sparked a late-afternoon rally in Hong Kong, sending the Hang Seng up 2.8%. While the implications of the proposed changes are unclear given the size of China's markets, strategists were encouraged that Beijing is considering increased foreign investment.
• Losses rising at FHA. As its mortgage-related losses pile up, the Federal Housing Administration is at risk of seeing its reserves fall below the level mandated by Congress. The agency has rapidly increased its role in guaranteeing loans as part of an effort to stabilize the housing market, but its mounting losses raise concerns about whether the attempted rescuer will need its own taxpayer bailout. Another option is that the FHA may have to raise the premiums borrowers pay, although the agency says if there is a shortfall, it won't have to do anything other than report it to lawmakers.
• Deutsche Telekom shops U.K. unit. Deutsche Telekom (DT) has initiated discussions with Vodafone (VOD), France Telecom (FTE) and Telefonica (TEF) about selling its flagging T-Mobile U.K. unit. Talks are still in preliminary stages, but an improving global economy has raised hopes the unit could bring in as much as €4B ($5.7B). In the meantime, Deutsche Telekom is working to improve the unit's performance so that it can either demand a more attractive sale price or, if the bids are too low, it can cancel the sale and continue to operate the unit.
• Cloudy prospects for Oracle-Sun deal. The European Commission put Oracle's (ORCL) planned takeover of Sun Microsystems (JAVA) on hold, citing 'serious doubts' about competition in the database sector if the world's leading proprietary database company is allowed to take over the world's leading open source database company. As the European Commission investigates the $7.4B deal, rivals Hewlett-Packard (HPQ), Dell (DELL) and IBM (IBM) win another chance to lure away Sun's customers.
• Gearing up for the G-20 meeting. Ahead of a meeting of G-20 finance ministers this weekend: the U.S., U.K., Germany and France called for work to begin on coordinated exit strategies, though they acknowledged the crisis is not yet over; ECB president Jean-Claude Trichet outlined for the first time the principles the ECB will use to unwind its exceptional policy measures; Geithner is pushing for an international accord on capital and liquidity rules, with consensus by the end of 2010 and implementation by the end of 2012; and, the U.K., France and Germany want 'binding rules' to rein in compensation at financial institutions, though a cap on total bonus pools could cause as many problems as it solves. A full G-20 summit will take place September 24-25.
• Microsoft gets the last word, for now. Microsoft (MSFT) won a delay on a court order that would have required the software maker to change its Word program immediately or halt sales. The order won't take effect until an appeal of the underlying patent case is resolved, with oral arguments scheduled for September 23.
• Berkshire not in the mood for ratings firm. For the second time in two months, Berkshire Hathaway (BRK.A) reduced its holdings of Moody's Corp. (MCO), this time by 2%. The sales come as the ratings firm experiences profit declines and widespread criticism over its ratings of mortgage-backed securities. With 39.2M shares remaining, Berkshire is still Moody's largest shareholder.
• Android sprinting towards mass acceptance. Sprint (S) will begin selling its first mobile phone based on Google's (GOOG) Android operating platform in October. The move should help Android gain wider acceptance, as consumers have been slow to embrace the platform which has only been available through T-Mobile USA (DT).
• Small steps to a new reserve currency. The U.S. dollar is safe as the world's reserve currency for now, but China took the first step towards a new reserve currency by agreeing to buy $50B of the IMF's Special Drawing Rights. The deal marks the first such agreement in the IMF's history and China's first concrete step in achieving its long-term stated currency goal.
• Same-store sales down but not out. Retailers' same-store sales fell for the 12th month in a row in August, but the decline was smaller than July's drop and half of retailers beat expectations, some by large margins (including Target (TGT), Costco (COST) and Gap (GPS)). Analysts were generally positive about the results, upgrading a number of retailers' shares. (See the store-by-store breakdown: I, II, III, IV, V)
• Monster's index improves (.pdf). Monster's online employment index rose 7 points in August to 121, its highest monthly rate of increase since August 2005. Year on year, declines slowed to 24%, the most moderate slowdown so far this year.
• Jobless claims miss estimates. Initial Jobless Claims came in at 570,000, down 4K from a week ago (revised) but worse than the 562K consensus. Continuing claims rose 92K to 6.234M.

Earnings: Friday Before Open

• H&R Block (HRB): FQ1 EPS of -$0.39 misses by $0.02. Revenue of $275M (+1.3%) vs. $280M. Full-year guidance in line. (PR)

Earnings: Thursday After Close

• Cooper Companies (COO): FQ3 EPS of $0.54 misses by $0.08. Revenue of $285M (+2%) vs. $289M. Sees Q4 EPS of $0.66-0.68 vs. $0.60 and full-year EPS of $2.27-2.29 vs. $2.30. (PR)
• Esterline Technologies (ESL): FQ3 EPS of $1.09 beats by $0.19. Revenue of $362M (-1%) vs. $368M. (PR)
• Quiksilver (ZQK): FQ3 EPS of $0.03 in-line. Revenue of $501M (-11%) vs. $480M. (PR)
• Shanda Interactive Entertainment (SNDA): Q2 EPS of $0.90 beats by $0.06. Revenue of $181M (+48%) vs. $179M. Hopes to raise $800M spinning off games unit in planned U.S. IPO. (PR)
• Ulta Salon (ULTA): Q2 EPS of $0.10 beats by $0.05. Revenue of $274M (+10%) vs. $271M. (PR)

Today's Markets

Asia markets were mostly higher Friday, as is Europe. Futures edged higher overnight.