>>> Asian Update

Asia Mid-Session Market Update: China officials express more concern over rising debt; BOJ Kuroda sees Japan CPI at or below zero for a while

***Friday US markets on close: Dow +0.2%, S&P500 flat, Nasdaq flat***
- At the close: VIX 16.12 (-0.6pts); Treasuries: 2-yr 0.83% (-1bp), 10-yr 1.79% (+5bp), 30-yr 2.55% (+8bp)
- Best Sector in S&P500: Financials
- Worst Sector in S&P500: Healthcare

***Weekend US Corporate Headlines***
- TSLA: CEO Musk tweets he is moving company announcement to reveal a new product to Wednesday, need a few days of refinement - financial press
- TSLA: To cooperate with Panasonic on PV cell/module production - financial press
- T: Looking to expand into the music business; Company is in acquisition mode - NY Post
- MENT: Working with Bank of America to explore strategic alternatives, including potential sale of company - financial press

***Asia Session Notable Observations, Speakers and Press***
- Late on Friday, US Treasury released its semi-annual currency report without naming any country a manipulator and a toned down view of China. Last time in April, China, Japan, Korea, Taiwan, Germany, and Switzerland were singled out for "Monitoring List". China has since met the criteria related to trade surplus and a threshold of 3% on current account, while Japan, Korea, and Germany were also seen with sufficiently large current account and trade surplus. US Treasury still sees global growth remaining soft relative to recent historical averages, with expected modest increase in 2017.
- Weekend China press focused more on govt addressing the risks of rising debt levels among corporates and financials. PBoC met with officials at SOEs and commercial banks to discuss rising risks of mortgage loan growth, while PBoC Dep Gov Fan also called for asset management firms to play bigger part in clearing up bad debt. In the mean time, the controversial debt for equity swap program saw Yunnan Tin and 2nd biggest lender China Construction Bank entering into a nearly CNY5B debt to equity pact.
- At the BRICS summit in India, China Pres Xi expressed concern that global economy is going through a "treacherous recovery" due to both internal and external factors, adding that "BRICS countries have somewhat slowed down in economic growth and have faced a number of new challenges in development."
- BOJ Gov Kuroda warned that core CPI will remain at 0% or below for a while, even as financial system is maintaining stability and economy continues to recover moderately as a trend (standard BOJ assessment); Earlier, Nikkei speculated the BOJ may reduce its CPI forecast for FY17/18 to low 1.0-1.5% area from 1.7% prior when it unveils its update on growth and inflation in 2 weeks.

***Asian Equity Markets (23:30ET)***
- Nikkei225 +0.2%, S&P/ASX -0.6%, Kospi +0.1%, Shanghai Composite +0.1%, Hang Seng -0.7%

***FX ranges/Commodities/Futures/Fixed Income (23:30ET):***
- EUR 1.0964-1.0982; JPY 103.94-104.37; AUD 0.7581-0.7620; NZD 0.7076-0.7104
- Dec gold -0.1% at $1,254/oz, Nov crude oil -0.3% at $50.19/brl, Dec copper +0.6% at $2.12/lb
- Equity Futures: S&P500 -0.3%, Dax -0.4%, FTSE100 -0.2%
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.7379 V 6.7157 PRIOR; lowest CNY setting since Sept 2010
- (JP) BOJ offers to buy ¥400B in 1-3yr JGBs, ¥420B in 3-5yr JGBs, and ¥410B in 5-10yr JGBs
- (KR) South Korea sells 10-yr govt bond, avg yield at 1.615%
- (CN) PBOC to inject CNY50B in 7-day reverse repos and CNY20B in 14-day reverse repos

***Key economic data:***
- (JP) JAPAN AUG FINAL INDUSTRIAL PRODUCTION M/M: 1.3% V 1.5% PRELIM; Y/Y: 4.5% V 4.6% PRELIM
- (JP) Japan Sept Tokyo Condominium Sales: +40.9% v -24.7% prior
- (NZ) NEW ZEALAND SEPT PERFORMANCE OF SERVICES INDEX: 54.1 V 57.9 PRIOR; lowest since Nov 2014
- (SG) SINGAPORE SEPT ELECTRONIC EXPORTS Y/Y: -6.6% V -9.0%E; NON-OIL DOMESTIC EXPORTS M/M: 2.4% V 1.9%E; Y/Y: -4.8% V -5.3%E
- (UK) UK OCT RIGHTMOVE HOUSE PRICES M/M: 0.9% V 0.7% PRIOR; Y/Y: 4.2% V 4.0% PRIOR

***Asia movers***
- Consumer discretionary: Crown Resorts CWN.AU -9.8%, Wynn Macau 1128.HK -4.1%, Sands China 1928.HK -3.9% (Crown Resorts employees detained in China); China Southern Airlines Co 1055.HK -0.7% (Sept result); Air China 753.HK -0.4% (Sept result)
- Industrials: MMA Offshore MRM.AU -5.1% (cuts guidance); Hyundai Heavy 009540.KR +2.4% (divestment speculation); Aurizon Holdings AZJ.AU +0.8% (Q1 result); Hanjin Shipping Co 117930.KR +7.2% (may sell service network); Sinochem International 600500.CN +0.5% (merger sentiment)
- Materials: Whitehaven Coal WHC.AU +2.3% (quarterly result); Evolution Mining EVN.AU -1.6% (Q1 result, acquisition); Fortescue Metals Group FMG.AU +1.6% (China iron rose); Kingsgate KCN.AU -45.1% (recommends to reject offer)
- Energy: Senex Energy SXY.AU -1.9% (Q1 result)
- Utilities: Tokyo Electric Power Co 9501.JP -7.9% (winner of Niigata gubernatorial elections opposes restart of reactors)

WSJ : Global Economy Week Ahead: China GDP, U.S. Industrial Production, ECB Meet

Global Economy Week Ahead: China GDP, U.S. Industrial Production, ECB Meeting
Inflation data are due from the U.K. and the U.S., as well as retail sales from China

The week’s economic calendar provides insight into how the world’s two largest economies are faring. It kicks off with a gauge of U.S. industrial activity, followed by a round of economic data out of China. From Europe comes a report on consumer confidence and a policy decision from the European Central Bank.

MONDAY: The U.S. Federal Reserve releases industrial production figures for September. The drop of 0.4% in August highlighted weak demand for manufactured goods, but economists expect a rebound in September.

TUESDAY: Inflation data for September will shed more light on the state of U.K. economy after the Brexit vote. Analysts see U.K. producers’ input prices rising by 7.4% on the year in September. Consumer price inflation also is expected to accelerate, to 0.9% on the year from 0.6% the previous month. Economists expect that sterling’s recent tumble will boost inflation in coming months, curbing consumer spending.

The U.S. Labor Department reports September’s consumer prices, and economists expect a rise of 0.3%, extending six months without a drop.

WEDNESDAY: China releases third-quarter gross domestic product data (Tuesday night in the U.S.) that is expected to show the economy grew by at least 6.7%, on pace with the first and second quarters. After a wobbly start to the year, China’s economy has stabilized thanks to easy-money policies and a wave of infrastructure projects. This puts China on track to meet its 2016 growth target of 6.5% to 7%, although economists say Beijing’s decision to prop up growth is likely to fuel debt and overcapacity and delay much-needed reforms. Alongside the GDP release come figures on industrial production, fixed asset investment and retail sales for September. China also is expected to release its September lending data sometime this week.

THURSDAY: European Central Bank officials will gather in Frankfurt for a policy meeting, but no major announcement is expected from ECB President Mario Draghi. Financial markets were rocked earlier this month by a report that the ECB could start to taper its bond-purchase program of €80 billion ($88 billion) a month. Top ECB officials sought to quash such concerns by emphasizing that the stimulus would continue. Mr. Draghi on Thursday could announce changes to the design of the purchase program to avoid possible shortages.

FRIDAY: The European Commission’s measure of consumer confidence in the eurozone is expected to show a second straight month of improving sentiment in October, but the forecast rise to minus 8.0 from minus 8.2 still would leave it below the levels prevailing before the U.K.’s Brexit vote, and consistent with a continuation of a modest economic recovery.

WSJ : Germany’s Apprenticeship System Comes Under Attack

Germany’s Apprenticeship System Comes Under Attack
Thicket of rules and standards, rooted in medieval guilds, may stymie investment in services sector

FRANKFURT—After 18 months of study, $2,200 in tuition and three exams, Ewa Feix is now permitted by German law to bake two variations of cupcakes.

“Not pretzels, not Black Forest gâteau, not bread,” said Ms. Feix, a Canadian who moved to Germany in 2009. Becoming a professional bread baker entails a three-year apprenticeship and more exams.

Germany’s thicket of rules and standards shields roughly 150 professions from competition, from ski instructors to well-diggers. Stiff fines await uncertified practitioners. German authorities conduct thousands of enforcement raids each year.

Now, the system—rooted in medieval guilds—is under attack.

ENLARGE
Many praise Germany’s rigorous apprenticeship model for funneling high-school dropouts into solid middle-income jobs. But economists warn the rigid rules are holding back growth and investment in the services sector, and contributing to the nation’s vast current-account surpluses, long a bone of contention with trading partners.

Crucially, German resistance has also helped stymie efforts to deregulate the vast European Union services market, which accounts for more than 70% of the region’s output but only around one-fifth of internal trade, according to Open Europe, a think tank. Since more productive companies are restricted from moving between countries to take market share, productivity suffers.

In business services, German worker productivity has barely risen since 2001, lagging behind the export-heavy manufacturing sector by about 30 percentage points, according to the Organization for Economic Cooperation and Development. Outside the crafts, Germany also slaps an extra layer of regulation on normally regulated fields including law, accountancy, architecture and telecommunications, the OECD says.

And while protected professions make up only about 10% of Germany’s $3.5 trillion economy, their indirect impact is much broader because services like engineering and telecoms are crucial for other industries, says Andres Fuentes, an economist at the OECD in Paris.

Fully liberalizing the EU services market could deliver a permanent economic boost worth around €300 billion, or 2.3% of gross domestic product, estimates Open Europe.

“The most powerful ‘quick win’ [for the region’s economy] would be to complete the single market, especially in services,” European Central Bank President Mario Draghi said in June.

But strong middle-class support, particularly among Chancellor Angela Merkel’s supporters, means the German system has defied repeated attempts at reform.

Defenders of the German system argue it ensures service quality and helps protect middle-class incomes against globalization, unlike in the U.S. and U.K. The middle classes accounted for about 60% of Germany’s income in 2013, compared with 43% for the U.S., according to a study by Berlin-based think tank DIW.

While anxiety over foreign workers fed the Brexit vote in Britain, German workers worry less about low-wage competition.

“The Brits need the Poles because they can’t do skilled jobs themselves,” said Bernd Ehinger, president of the crafts industry association for the Frankfurt region. His family firm, Elektro Ehinger GmbH, employs more than a dozen Master craftsmen, who each earn more than €60,000 a year.

To set up shop in Germany, plumbers, bricklayers and workers in 39 other crafts must typically pass a three-year apprenticeship course and then take a vocational degree to become a master of their trade. The process takes five or six years.

But the German system also means less competition and higher prices for consumers, said Daniel Dalton, a European lawmaker who compiled a recent report on Europe’s services sector. “Elements of the rules for craftsmen could be described as discriminatory,” Mr. Dalton said. “I worry that some are protectionist.”

While many European countries regulate professional services, the practice is most pronounced in Germany, where a third of workers require a professional certificate to perform their job, compared with 14% of Danes and 19% of Brits, according to a survey by the European Commission, the EU’s executive arm.

The Commission this year stepped up legal proceedings against Germany for limiting competition in certain professional services, including architects and engineers. It plans to make fresh legislative proposals later this year aimed at making it easier for EU professionals to set up shop in other countries and offer their services across national borders.

Meanwhile, the arrival of more than a million migrants is putting fresh pressure on Berlin to ease their route into well-paid jobs. A failure to properly integrate the newcomers, who are typically keen to set up businesses, could seal Chancellor Merkel’s political fate.

Germany places 107th in the World Bank’s ranking of countries where it’s easiest to start a business, below Guatemala and Sierra Leone.

Germany’s traditional approach to job qualifications “may not work well for refugees (or other immigrants), who are often older than typical trainees, may have skills learned informally, and may not be able to afford lengthy schooling periods with low earnings,” the International Monetary Fund said in June.

WSJ : Stocks Face Threat as Globalization Loses Steam

Stocks Face Threat as Globalization Loses Steam

Slowing world trade growth, moves toward protectionism pose risks for profits; the demise of the U.S. market’s ‘globalization premium’

LONDON—Every winter, senior managers at Barings gather at their central London office to iron out their 10-year investment forecast.

On next year’s agenda for the $275 billion asset manager? Another haircut to what they call the “globalization premium” on stocks—or even its outright elimination.

An acceleration of global trade and the freer flow of capital have boosted U.S. equity prices for nearly three decades, in part by lifting economic growth and allowing companies to take advantage of new markets and economies of scale, fund managers say. Barings calls it the globalization premium.


But now a broad slowdown in world trade coupled with unruly politics from Brexit to the U.S. presidential election have some money managers worried that a slowdown in globalization could be the next big drag on global stocks.

“We believe globalization has probably reached its peak,” said Marino Valensise, head of the multi-asset team at Barings. “The market won’t like it.”

Global trade this year will grow at the slowest pace since 2007, according to the World Trade Organization, just as protectionist policies are on the rise and efforts to liberalize trade have stalled. The International Monetary Fund recently warned that anti-trade trends such as increases in tariffs could cause long-term damage to the world economy.

Some are worried this could spill over to corporate profits.

Global stock-index provider MSCI estimates that if policies such as trade protectionism and government deficit spending increase significantly in the developed world in the next two years, U.S. equities would shed more than 17%, while European equity markets would fall by close to 20%. In a stress test run by MSCI, the firm assumes that such policies would lead to stagflation, a toxic combination of higher inflation and lower growth.

Michael O’Sullivan, chief investment officer for Europe at Credit Suisse, said investors are facing a “post-globalization” landscape. “For markets, the slowdown in globalization means even more uncertainty,” he said.

Companies around the globe, from shippers to manufacturers, have already pointed to slowing trade and rising protectionism as a drag on profits.

U.S.-based Deere & Co., the world’s largest seller of tractors and harvesting combines, said earlier this year that protectionism and trade restrictions could hurt its results.

In Australia, Ansell Ltd., one of the world’s biggest makers of condoms, sees the rise of political risk clouding its long-term outlook. The U.K.’s vote to exit the European Union added “an element of uncertainty in all of Europe,” Chief Executive Magnus Nicolin said on the company’s latest earnings call.

It wasn’t supposed to be this way.

Equity valuations spiked in the early 1990s after the fall of the Berlin Wall ushered in the end of the Cold War. World trade boomed, McDonald’s Corp. started flipping more burgers in China and Ford Motor Co. could manufacture pickup trucks cheaply in Thailand.

U.S. stock valuations jumped above their 120-year average on the assumption of ever increasing global trade and easier movement of goods, services and capital across borders, said Christopher Mahon, director of asset allocation research also on the multi-asset team at Barings.

The globalization premium meant that U.S. stocks collectively traded at a price-to-earnings ratio roughly one whole number higher they otherwise would have, Barings estimates. P/E ratios, calculated by dividing stock prices by earnings per share, are a common measure of how expensive shares are.

Barings calculated the premium by analyzing historical valuations and stripping out the impact of other variables such as inflation dynamics and central-bank policies. Calculating the globalization premium is the result of extensive debate among senior investment strategists at the firm, who pore over economic data, forecasts and research reports before deciding on a number every year.

But that equation is changing.

Over the past decade, Barings has cut the premium by half, and the firm’s outlook for stocks is going down with it. Other fund managers say they are becoming more selective, shunning the sectors and countries they view as most likely to suffer from the resulting slowdown.

"Globalization is increasingly coming under siege,” said Stefan Scheurer, senior market strategist at Allianz Global Investors.

Mr. O’Sullivan of Credit Suisse said the U.S. profit cycle correlates well with world trade. “And in the past two years we had falling profits and slowing trade,” he said.

Companies listed in the S&P 500 derive more than 30% of their revenue overseas, according to FactSet.

Global container-shipping operators have already cited the slowdown in trade as a major drag on profits, with the shipping industry facing its worst year since the 2008 financial crisis.

The number of protectionist measures implemented around the globe so far this year has climbed to 338, according to researchers at Global Trade Alert, the highest for the corresponding period since they began tracking the figure in 2009 and up from 61 in the same period that year. Global Trade Alert is a trade-monitoring group coordinated by the Centre for Economic Policy Research, an independent research think-tank based in London.

Efforts to liberalize world trade have also stalled, including the Transatlantic Trade and Investment Partnership, the potential free-trade deal between the U.S. and the European Union.

In the U.S., the Peterson Institute for International Economics said the proposed trade policies of presidential candidates Donald Trump and Hillary Clinton would deeply hurt the American economy by slowing productivity growth.

“We’re very concerned about the positions of both parties in trade,” Fred Smith, chief executive at FedEx Corp., said on the company’s latest earnings call.

Some investors argue that even as globalization may be on the decline in the West, pockets of the world continue to open themselves up for trade, creating new investment opportunities. Sandra Crowl at French asset manager Carmignac points to Argentina, for instance, as a country that may benefit more from opening itself up to the world even as other countries, such as the U.S., become more protectionist.

Mr. O’Sullivan of Credit Suisse said that investors can protect themselves long-term against the slowdown of globalization by switching from multinational companies to national champions like Chinese internet companies or Latin American airlines.

At Barings, managers favor a different approach: moving away from equities and into fixed-income securities like bonds, which are likely to be more insulated from the turmoil.

“In March, I daresay we will be once again putting a haircut to our globalization premium,” Mr. Mahon said. “Or possibly cut it to zero.”

FT : UK car industry fears effects of Brexit tariffs on supply chain

UK car industry fears effects of Brexit tariffs on supply chain
Suppliers say uncertainty over trade agreements may force them to relocate overseas

Before the new Bentley SUV purrs away from the showroom, its bumper will have already travelled 2,200 miles, crossing the English Channel three times.

The luxury carmaker is owned by Volkswagen but based in Crewe in northern England, where VW invested heavily to upgrade a factory that dates from the second world war.
But while the final assembly of each Bentley remains in Britain, the components that make up the cars are drawn from across the world and often zigzag back and forth between factories in the UK and the continent before arriving at Crewe.
That leaves Bentley’s supply chain, in common with that of almost every other car manufacturer in Britain, at risk of being hit by tariffs if Britain leaves the European single market.
Bumpers for some Bentley Bentaygas, for example, are made in Europe but then sent to Crewe for inspection before then going to Germany for specialist painting. After that, they return to the UK for final assembly.
Another example of the interconnectedness of the supply chain is a fuel injector for diesel lorries manufactured by the US component maker Delphi.

This part uses steel from Europe which is machined in the UK before going to Germany for special heat treatment. The injector is then assembled at Delphi’s UK plant in Stonehouse, Gloucestershire, before being sold on to truckmakers based in Sweden, France or Germany.
If the resulting truck is sold into the UK market, the component or materials used in it will have crossed the Channel five times before the lorry is ever driven by the customer. If tariffs are applied at each stage, the cost could be substantial.
Suppliers to the UK car industry have warned that just the uncertainty over future trade agreements may force them to relocate parts of their manufacturing process overseas.
“If you have any tariffs, you would have to fundamentally look at your whole supply chain because you could quickly end up losing your margin on the component,” said Tim Lawrence, head of manufacturing at PA Consulting.
The UK car industry supports 169,000 manufacturing jobs, of which 78,000 are in supply chain companies, according to the trade body SMMT.
Some 18 of the world’s 20 largest parts groups have operations in the UK, including Bosch, Continental, Magna and Delphi.
Two-thirds of the £4bn of motor components that are exported from the UK go to the EU, while the vast majority of materials that go into British-built cars are imported.

Consultancy Vendigital estimates that, of the £15bn-worth of materials used in UK cars, some £12bn comes from overseas.

Several of the component companies said that they were unable to relocate full production to the UK because there was not enough scale to make them economically viable.

“If we faced tariffs, we would need to make the supply chain shorter and more integrated, or would need to take the assembly out of the UK,” says a manager at one motor supplier with plants across Europe.

“Today in Europe it is easy, there is a good logistics chain, it is easy to get materials from the UK to Europe and the other way.”

When it comes to engines, Ford and BMW both import parts from Europe to make engines in the UK that are then sent for assembly into cars on the continent. Many of these cars, such as the popular Ford Focus or BMW 3-series, are then sold back into the UK market.

Efforts are already under way to “British-ise” the supply chain for cars manufactured in the UK. In July 2013, the Automotive Investment Organisation — an arm of the Department of Trade and Investment — was set up to encourage supply groups to relocate to the UK.

In the past three years, the percentage of UK parts in British-built cars has risen from 36 per cent to 41 per cent, and is expected to keep rising with an unofficial target of reaching 50 per cent.

Even after the Brexit vote, the Spanish body parts manufacturer Gastamp announced a £70m investment in its plant in Cannock in Staffordshire in September, while Jaguar Land Rover supplier Magna is pushing ahead with plans announced in May to build an aluminium casting facility in Telford.

But future investments are closely tied to decisions by carmakers to build their next models in the UK — something that is by no means guaranteed.

Carlos Ghosn, chief executive of Renault and Nissan, who met Theresa May on Friday, said that he would delay investments in Sunderland until the UK’s negotiations with the EU were finished — or seek assurances from government that he would be compensated for any tariffs the plant does eventually face.

One supplier, who sells directly to several UK car plants, says its future investments will “totally depend” on whether carmakers shift work outside of the UK to the continent. “We do not want to be relocating because our machinery and processes are all here, but I cannot discount that that might happen.”

FT : Passera rescue plan studied by Italy’s Monte dei Paschi

Passera rescue plan studied by Italy’s Monte dei Paschi
Proposal from former Intesa Sanpaolo boss Corrado Passera rivals a stalled JPMorgan-led salvage plan

The board of Italy’s Banca Monte dei Paschi di Siena is studying a proposal for a €5bn recapitalisation of the world’s oldest lender presented by veteran banker Corrado Passera with backing from Bob Diamond’s investment vehicle.

The recapitalisation approach from Mr Passera, the former head of Italy’s Intesa Sanpaolo and ex-industry minister, represents a challenge to a JPMorgan-led rescue plan that has stalled recently because of scant investor interest.

European regulators have ordered MPS to offload nearly €30bn of bad debts. Senior bankers warn than if neither JPMorgan nor Mr Passera succeed in their rescue attempts, MPS’s creditors could be bailed in by the end of the year, with potentially damaging political and financial consequences.

In a statement over the weekend, MPS’s board said it had received “a non-binding proposal on a potential capital strengthening of the bank” from Mr Passera.

The board said it had “granted a specific mandate” to chief executive Marco Morelli, a former JPMorgan and Bank of America Merrill Lynch banker who also used to work for Mr Passera at Intesa, to investigate the proposal.

Mr Passera’s proposal is the latest dramatic twist in the fortunes of MPS, which was founded in 1472 and has suffered a precipitous decline in the past decade. A costly acquisition by the Siena-based lender on the cusp of the financial crisis was compounded by derivatives fraud, mismanagement and Italy’s economic stagnation.

It comes as a plan agreed by JPMorgan chief executive Jamie Dimon with reformist prime minister Matteo Renzi before the summer is under review. Investors have baulked at stumping up €5bn in new capital for a bank with a market capitalisation of only €500m, say senior bankers involved in the talks. It has already burnt through the €8bn it raised over the past two years.

Mr Renzi hopes to avoid losses being imposed on the thousands of retail investors that own MPS bonds under EU bank rescue rules ahead of a crucial referendum over constitutional reform on December 4 that analysts think could cost him his job.

The plan proposed by Mr Passera involves raising €5bn in new capital through a €1bn share sale to existing investors and a €2.5bn investment from new long-term backers, according to a person with direct knowledge of the plan.

Mr Passera has lined up new investors with Atlas Merchant Capital — the investment vehicle of former Barclays boss Bob Diamond — among those approached, said another person familiar with the proposal.

The funds would be needed to cover €4.6bn of extra provisions from selling €31bn-€32bn of bad loans to a separate vehicle, the person said. The new investors would be offered stakes in both the bad loans vehicle and MPS. Further equity could be raised on the market next year or via a debt-for-equity swap, this person said.

By contrast, JPMorgan is now looking at a revised plan which would involve MPS raising €1bn to €2bn via a debt-for-equity swap launched in November, said people working on the proposal.

Bankers on the deal hope then to launch a capital increase of up to €3bn as early as December 5, the day after Mr Renzi faces the referendum, said a person directly involved in the plan.

Italy’s government and JPMorgan have also sought to bring in an anchor investor and had approached deep-pocketed groups in both Qatar and Dubai as well as private equity investors, say three people familiar with the matter. Those talks have not yet resulted in a deal, say these people.

MPS’s travails have become a bellwether of the problems of Italy’s €4tn banking system which is weighed down by €360bn of soured loans, €200bn of which are classed as gross non-performing loans. Italy’s bank shares have lost a fifth of their value this year. MPS stock is down 85 per cent.

A failure to recapitalise MPS would have systemic consequences, say senior bankers. It risks a knock on effect on recapitalisation of UniCredit, Italy’s largest bank by assets, which is expected to seek to raise more than €10bn in new capital early next year.

>>> What to look at this Week-End 15th & 16th of October 2016

Weekly Update
Dow -0.56% S&P -0.96% Nasdaq -1.48% Russell -1.95% Brazil +1.85% Nikkei -0.25% Hang Seng -3% CSI +1.62% Shanghai +1.97% EuroStoxx 50 +0.82% EuroStoxx 600 +0.09% FTSE -0.44% CAC +0.47% Dax +0.85% Ibex +1.67% MIB +1.13% SMI -0.43%
US indices finished lower for the second straight week as investors' risk appetite faded heading into earnings season. Preannouncements from the likes of Honeywell, Dover, Ericsson, and Fortinet continued to spook market participants, along with a disappointing Q3 report from Alcoa, tempering expectations ahead of the quarterly deluge that begins in earnest next week. Friday's strong banking results took some of the sting away but traders nevertheless remain anxious to hear what managements have to say.

Macro :
- BOE’s Shafik Says GBP Fall May Push Up Inflation: Mercury
- Fed’s Dudley Sees Rate Increase This Year: Wall Street Journal
- Germany Exploring Mechanism to Limit Foreign Takeovers: WamS
- Hedge Funds Buy BrightHouse Debt in Restructuring Bet: Telegraph
- Boris Johnson Wrote Brexit Could Cause Economic Shock: Times
- 2 former traders at Izzy Englander's Millennium have reunited to launch a new hedge fund

Keep an eye on :
- ADN LN : Crispin Odey Ends 3-Yr Short of Aberdeen Asset Mgmt: Telegraph
- AIR FP : Airbus in ‘Constructive Talks’ With Leonardo on MBDA: Il Sole
- AIR FP : Poland Mulls Making Helicopter w/ Ukraine: Macierewicz to WSieci
- AAPL US : U.S. Said to Ban All Samsung 7 Phones on Airline Flights
- AAPL US : Alitalia Bans Samsung Galaxy Note 7 From All Its Flights
- BP/ LN : BP to Decide on U.S. Wind Power Expansion This Yr: FT
- BPM IM : Approved meger-One newly issued Banco BPM share for each Banco Popolare share, One newly issued Banco BPM share for 6.386 BPM shares
- CBK GY : Commerzbank Mulls Listing ETF, Derivatives Unit: Euro Am Sonntag
- CON GY : Acquires auto supplier Konrad Hornschuch, has annual sales of approx €410M, has 1,800 employees and operates four manufacturing sites in German and the US.- no details
- COTY US : Coty Said to Be Near GBP400m-Plus Purchase of U.K.’s GHD: Sky
- DBK GY : Deutsche Bank Is Asked to Change Business Model in U.S.: Welt
- ENG SM : Enagas Agrees to Boost Stake in Transportadora de Gas Del Peru
- GALP PL : Galp Chairman Americo Amorim Resigns; Replaced by Paula Amorim
- LDO IM : Airbus in ‘Constructive Talks’ With Leonardo on MBDA: Il Sole
- MC FP : Audemars Piguet Chairwoman Has Never Considered Sale: SZ
- NG/ LN : National Grid Said to Select Macquarie, Fosun as Canadians Drop
- PMI IM : Popolare Milano Approves Merger With Banco Popolare: Spokeswoman
- ROG VX : Roche Granted FDA Orphan Drug Status for Atezolizumab
- RMG LN : Most Royal Mail Workers Reject Chance to Sell Shares: Sky
- SYNN VX : Sinochem Chairman Has Been Driving ChemChina Merger Talks: FT
- TWTR US : Salesforce CEO Benioff Says Twitter ’Not Right Fit’: FT
- UCG IM : UniCredit Said Near Partial Stake Sale of Bank Pekao: WSJ
- VIV FP : Vincent Bolloré Boosts Stake in Vivendi to More Than 20%
- VOW3 GY : VW Seeks 10% Cut in 2017 Indirect Overhead Costs: Automobilwoche
- WHL LN : William Hill to Continue Merger Talks With Amaya: Telegraph

>>> US warships USS Mason, USS Nitze and USS Ponce may have come under a missile

US warships USS Mason, USS Nitze and USS Ponce may have come under a missile attack in the Red Sea off the coast of Yemen 
- US defense official stating: "A US Strike Group transiting international waters in the Red Sea detected possible inbound missile threats and deployed appropriate defensive measures... Post event assessment is ongoing. All US warships and vessels in the area are safe."