>>> What to look at today - 13th of October 2016

Dow +0.09% S&P +0.11% Nasdaq -0.15% Russell -0.03% VIX 15.91 (+3.58%) VXX 34.37 (+0,26%)
US Market closed on a flat note on this Yom Kippour Day, even the FED Minutes didn't get any motivation in this market. The minutes from the FOMC's September policy meeting indicated that there were a number of arguments for raising rates in September, but that the committee opted to wait for further data. All in all, there wasn't really any "new" news in the minutes, which essentially reinforced preconceived policy notions held by the market ahead of their release. According to the CME's Fed Watch Tool, the probability of a rate hike at the November meeting is just 9.3% while the probability of a hike at the December meeting sits at 69.9%. All yield plays sector Outperformed today, real estate (+1.3%), utilities (+1.0%), telecom services (+0.6%), and consumer staples (+0.5%). Eight sectors finished in positive territory while three -- health care (-0.6%), energy (-0.4%), and materials (-0.2%) -- ended the day with a loss. energy sector (-0.4%) underperformed amid a 1.1% decline in crude oil futures ($50.15/bbl, -$0.56). Volume were light today on Observance of Yom Kippour with only 655mil shares traded. US After Hours CSX +2.3% on earnings and modestly boosting rail names, WFC +1.7% on Chairman/CEO John Stumpf retirement news... FLDM -18.4% on dismal Q3 sales/suspending 2016 guidance. In Asia, Yen spikes, equities slide on soft China trade data. China trade surplus slows to 6-month lows in both USD and Yuan terms; USD-denominated exports fall -10.0% v -3.3%e, biggest decline in 7 months; Imports fall -1.9% v +0.6%e; Disappointing data sparks selloff in Hong Kong equities as Hang Seng index falls to a 2-month low below 23,200. BOJ speculated to downgrade its FY17/18 CPI forecast to low-1% range from 1.7% when it announces its latest GDP and inflation forecasts on Nov 1st.

Nikkei -0.36% Hang Seng -1.27% CSI -0.03% Shanghai +0.01%

Eur$ 1.1017 CNH 6.7381 CNY 6.7269 JPY 103.78 GBP 1.2180 RUB 63.1563 CHF 0.9885 WTI$ 49.79 -0.78%

S&P -0.68% EuroStoxx -0.57% FTSE -0.32% DAX -0.62% SMI -0.4%

Macro :
- Mifid II Overhaul Will Turn World Upside-Down: T. Rowe’s Brooks
- France PM Valls Says ‘The European Project Is in Trouble’ in FT
- Fed: Several Officials Saw Hike As Appropriate ‘Relatively Soon’
- London Home Presales Slump 14% as Brexit Compounds Tax Woes
- China’s Sept. Exports Fall 5.6% Y/y in Yuan; Est. +2.5%
- Libya Wealth Fund Wants More Board Seats in Italy: Corriere

Keep an eye on :
- AIR FP : Embraer Sees $80b Small-Jet Market Demand in Europe and CIS
- AMZN US : Amazon Germany Head Says Considering Storefronts: Handelsblatt
- ARAMCO IPO : Aramco Still Considering N.Y. IPO Listing, CEO Tells Turkish TV
- BP IM : Banco Popolare Extends Winning Streak as Merger Vote Approaches
- BAYN GY : Bayer Closes Syndication of $57b Acquisition Facilities
- CO FP : Casino 3Q Sales Beat Ests., Confirms 2016 French Targets
- DL NA : Dutch Court Rejects Delta Lloyd Probe Request by Highfields
- DB1 GY : Deutsche Boerse, LSE May Have to Sell Assets for EU Nod: WiWo
- DNB NO : DNB Won’t Rule Out Converting Offshore Vessel Debt to Equity: FA
- EOAN GY : EON Said to Explore Spinoff, IPO Options for Power Grids: WiWo
- ERICB SS : Investor AB Chairman Unhappy With Ericsson Development: DN
- GATE SW : *GATEGROUP ACQUIRER HNA SEEKS DELISTING, FURTHER SHARE PURCHASES
- IAG LN : British Airways CEO Still Sees 2016 Oper. Profit to Rise vs 2015
- INGA NA : ING Groep to Transfer Brussels Trading Desk to London: De Tijd
- MB IM : Mediobanca to Present New 3-Yr Strategic Plan November 17
- MS IM : Mediaset Said to Ask Milan Court to Freeze Vivendi Stake
- MERY FP : Mercialys Raises 2016 FFO Growth Target to 3%-4% Range From 2%
- PSM GY : ProSiebenSat.1 Raises 2016, 2018 Sales Targets
- PUB FP : Publicis Studies Levy Succession Options, Les Echos Says
- RDUS US : Press speculation about potential Shire interest - FT
- RIO LN : BHP, Rio Cut to Sell as Prices for Bulk Commodity to Fall: Citi
- SAS SS : Sweden, Norway to Boost Sale of SAS Shares to 23m From 19m
- SHP LN : FT pseculating about potential interest for Radius Health
- SNAP IPO : Snapchat Said to Pick Morgan Stanley, Goldman Sachs to Lead IPO
- SZU GY : Suedzucker Still Sees Fy Op. Profit of EU340m-EU390m
- TIF US : Tiffany Oct Puts Active in Spread Trade Amid LVMH Read Through
- TOM2 NA : TomTom Cuts 2016 Rev. Outlook, Cites Weak Consumer PND Markets
- UCG IM : UniCredit Raising $606m in Sale of FinecoBank Stake
- DG FP : Vinci Rated New Outperform at Credit Suisse, Eiffage New Neutral
- VIV FP : Mediaset Said to Ask Milan Court to Freeze Vivendi Stake
- VOW3 GY : Volkswagen Said to Disclose ‘More Realistic’ CO2 Emissions: SZ

>>> Europe : Brokers Upgrades & Downgrades - 13th of October 2016

>>> Up
*CAPCO RAISED TO OUTPERFORM VS UNDERPERFORM AT CREDIT SUISSE
*G4S RAISED TO OUTPERFORM AT RBC
*PORR RAISED TO BUY VS HOLD AT BERENBERG
*TRAVIS PERKINS CUT TO SECTOR PERFORM AT RBC
*TULLOW OIL RAISED FROM EQUALWEIGHT TO OVERWEIGHT AT MORGAN STANLEY
*TURKISH AIRLINES RAISED TO BUY VS HOLD AT HSBC

>>> Down
*GREEN DRAGON GAS CUT TO HOLD VS BUY AT PEEL HUNT
*INTERTEK CUT TO UNDERPERFORM AT RBC
*MITIE GROUP CUT TO SECTOR PERFORM AT RBC
*RENTOKIL INITIAL CUT TO OUTPERFORM AT RBC
*SANNE GROUP RATED NEW OUTPERFORM AT RBC
*SGS CUT TO UNDERPERFORM AT RBC

>>> PT Change


>>> Initiation
*AB INBEV REINSTATED AT HOLD AT DEUTSCHE BANK; PT EU120
*ASHTEAD GROUP RATED NEW OUTPERFORM AT RBC
*EIFFAGE RATED NEW NEUTRAL AT CREDIT SUISSE, PT EU74
*NANOCO RATED NEW BUY AT PEEL HUNT, PT 75P
*UNIPER RATED NEW NEUTRAL AT CITI; PT EU11.60
*VINCI RATED NEW OUTPERFORM AT CREDIT SUISSE, PT EU80

>>> Call
>> Stock
*NOKIA REMOVED FROM CONVICTION BUY LIST AT GOLDMAN; STILL BUY

FT : Radius / Shire Speculation mentionned in the FT

Shire was down 2.1 per cent to £51.09 even as people familiar with its strategy once again played down speculation that the drugmaker might bid for Radius Health, the $2.5bn-valued osteoporosis specialist.
Speculation around Radius “looks like a red herring to us,” added Citigroup. “Osteoporosis is not a rare disease and while Shire has the ability to go to 5.5 times net debt to Ebitda [earnings before interest, taxes, and amortisation], we see integration of Baxalta, and the paying down of debt, as continuing to be management’s key near-term priorities.”

>>> Asian Update

Asia Mid-Session Market Update: Yen spikes, equities slide on soft China trade data

***US Session Highlights***
- British Pound stabilizes on softer commentary from PM May
- OPEC Sept monthly oil market report; Maintains 2017 global oil demand at 1.15M bpd
- (UK) Brexit Min Davis: No one will be able to veto Brexit referendum result; it is the govt's right to determine when to trigger Article 50
- (US) FOMC Minutes: Several voting Fed policymakers thought rates should rise 'relatively soon'
- Fed funds futures outlook for 1 rate hike this year remains around 70%

***US markets on close: Dow +0.1%, S&P500 +0.1%, Nasdaq -0.2%***
- Best Sector in S&P500: Utilities
- Worst Sector in S&P500: Healthcare
- Biggest gainers: BBY +3.8%, LB +3.5%, KR +3.5%, SWK +2.9%, CCI +2.8%
- Biggest losers: HUM -5.1%, MOS -4.3%, ENDP -4.1%, FFIV -3.3%, REGN -3.3%
- At the close: VIX 15.91 (+0.6pts); Treasuries: 2-yr 0.84% (-3bp), 10-yr 1.78% (+2bp), 30-yr 2.51% (+1bp)

***US movers afterhours***
- CSX +2.6%: Reports Q3 $0.48 v $0.45e, R$2.71B v $2.69Be
- WFC +1.8%: Confirms Chairman/CEO Stumpf retires, effective immediately; Board elects Sloan CEO; Director Sanger to serve as Chairman
- MELI -6.3%: Commences 5.5M share follow-on offering by eBay affiliates through Morgan Stanley and JPMorgan (12% of shares outstanding)

***Asia Session Notable Observations, Speakers and Press***
- China trade surplus slows to 6-month lows in both USD and Yuan terms; USD-denominated exports fall -10.0% v -3.3%e, biggest decline in 7 months; Imports fall -1.9% v +0.6%e; Disappointing data sparks selloff in Hong Kong equities as Hang Seng index falls to a 2-month low below 23,200; USD/JPY erases its earlier session gains to test below ¥104; S&P500 futures down over 12 handles below 100-day EMA of 2,120; Offshore CNY falls through 6.738 after 7th consecutive weaker setting by PBoC.
- Bank of Korea leaves rates on hold for the 4th straight decision in another unanimous decision; Lowers 2017 GDP target to 2.8% from 2.9% on speculation of slower growth in the wake of Samsung Galaxy Note 7 scandal; Pledges to monitor household debt; expects some improvement in exports and a gradual rise in inflation next year. KRW weakens through 1,130 vs USD - 1-month low.
- BOJ speculated to downgrade its FY17/18 CPI forecast to low-1% range from 1.7% when it announces its latest GDP and inflation forecasts on Nov 1st.
- Donald Trump facing NY Times allegations of unwanted physical advances from two named women.
- CSX is the first US rail major to announce Q3 earnings - beats on top and bottom line with a 70bp expansion in Operating ratio to 69.0% and affirms long-term growth target of mid-60's. Focus on Delta in pre-market on Thursday and top banks (C, JPM, WFC) on Friday. WFC announces immediate departure of CEO Stumpf in the wake of fake account scandal.

***Asia Key economic data:***
- (CN) CHINA SEPT TRADE BALANCE (USD): $42.0B (6-month low) V $53.0BE; Trade Balance (CNY): 278.4B (6-month low) v 364.5Be
- (KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.25%; AS EXPECTED; (4th straight pause in current easing cycle)
- (AU) AUSTRALIA OCT CONSUMER INFLATION EXPECTATION: 3.7% V 3.3% PRIOR; 3-month high
- (NZ) NEW ZEALAND SEPT BUSINESS MANUFACTURING PMI: 57.7 V 55.2 PRIOR; matches Jan 2016 high
- (NZ) NEW ZEALAND SEPT ANZ JOB ADVERTISEMENTS M/M: 0.3% V 3.2% PRIOR
- (NZ) NEW ZEALAND OCT ANZ CONSUMER CONFIDENCE INDEX: 122.9 V 121.0 PRIOR; M/M: 1.6% V +2.8% PRIOR
- (UK) SEPT RICS HOUSE PRICE BALANCE: 17% V 14%E; 4-month high

***Asian Equity Markets (23:00ET)***
- Nikkei -0.4%, Hang Seng -1.5%, Shanghai Composite -0.1%, ASX200 -0.9%, Kospi -0.6%

***FX ranges/Commodities/Futures/Fixed Income (23:00ET):***
- EUR 1.1000-1.1035; JPY 103.60-104.60; AUD 0.7520-0.7570; NZD 0.7035-0.7070
- Dec Gold +0.6% at 1,260/oz; Crude Oil -1.0% at $49.67/brl; Copper -0.2% at $2.17/lb
- Equity Futures: S&P e-mini -0.7%, Dax -0.4%, FTSE100 -0.4%
- (US) Weekly API Oil Inventories: Crude: +2.7M v -7.6M prior; 1st build in 4 weeks
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.7296 V 6.7258 PRIOR (7th consecutive weaker setting, lowest CNY setting since Sept 2010)
- (CN) PBOC to inject CNY20B in 7-day reverse repos
- (JP) BOJ offers to buy ¥410B in 5-10yr JGBs, ¥190B in 10-25yr JGBs and ¥110B in JGBs with maturity over 25-yr
- (NZ) New Zealand sells NZ$100M in 2035 inflation indexed bonds; avg yield 1.9016%

***Asia movers***
- Consumer discretionary: Kirin Holdings Co 2503.JP -0.2% (acquisition of 25% of Brooklyn Brewery); Saizeriya Co 7581.JP -1.4% (annual result); Lawson 2651.JP +1.7% (H1 result)
- Consumer staples: Seven West Media SWM.AU -1.3% (may sell stake in Sky News); Cosmos Pharmaceutical Corp 3349.JP +2.5% (Q1 result)
- Financials: China Overseas Land 688.HK -1.9% (Sept result); Ping An Bank Co 000001.CN -0.3% (plans board change)
- Industrials: Suzuki 7269.JP +2.0% (speculation of partnership with Toyota); China Railway Construction Corp 1186.HK +1.9% (YTD result); Cathay Pacific Airways 293.HK -5.2% (lowers H2 outlook); Yamato Holdings Co 9064.JP +0.3% (H1 result speculation)
- Technology: Samsung Electronics 005930.KR +1.3% (cuts Q3 outlook)
- Materials: Evolution Mining EVN.AU +3.3%, Saracen Mineral Holdings SAR.AU +3.1% (gold rises); Alumina AWC.AU -3.7% (CitiGroup cuts to sell); Iluka Resources ILU.AU -1.9% (Q3 production result)
- Healthcare: Sigma Pharmaceuticals SIP.AU -3.7% (Morningstar cuts to reduce)

>>> US After Hours

After Hours Summary: CSX +2.3% on earnings and modestly boosting rail names, WFC +1.7% on Chairman/CEO John Stumpf retirement news... FLDM -18.4% on dismal Q3 sales/suspending 2016 guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: NEPT +9%, CSX +2.3% (rails higher in sympathy: NSC +1.3%, UNP +0.2%, CNI +0.2%, KSU +0.1%)

Companies trading higher in after hours in reaction to news: EBAY +2.5% (MercadoLibre commences a 5.5 mln share underwritten public offering of common stock by selling stockholders eBay & certain subsidiaries; eBay says sale will enable it to realize a significant gain on its investment), ERJ +1.9% (upgraded to Buy from Neutral at Goldman), AAMC +1.8% (after 30%+ move higher), WFC +1.7% (Wells Fargo Chairman, CEO John Stumpf retires; Board of Directors elects Tim Sloan CEO, Director; appoints Lead Director Stephen Sanger Chairman), HTGM +1.3% (continued strength after jumping 35% on broad companion diagnostics master agreement w/ Merck KGaA news)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: FLDM -18.4% (issues Q3 prelim revenue numbers of ~$22.2 mln vs. $29.3 mln Capital IQ Consensus Est; as a result of its Q3 prelim numbers, co is suspending its full year 2016 guidance)

Companies trading lower in after hours in reaction to news: TGTX -20% (to host conference call to provide an update on the GENUINE Phase 3 trial tomorrow, Thursday, October 13, 2016 at 8:30am ET), MELI -6% (MercadoLibre commences a 5.5 mln share underwritten public offering of common stock by selling stockholders eBay & certain subsidiaries; MercadoLibre offers prelim Q3 results in conjunction with today's proposed secondary offering, sees revs of $220-290 mln vs $222.13 mln Capital IQ Consensus Estimate), VOXX -1.3% (light volume in after hours -- was up nearly 50% today on earnings), SGEN -0.5% (filed for 44,059,594 share common stock offering by holders)

Re/Code.net : A new generation of 5G will change everything from platforms to se

A new generation of 5G will change everything from platforms to self-driving cars
The high-speed wireless network will be a critical component in the federal government’s agenda to develop the next level of U.S. innovation.

This week, President Obama will arrive in Pittsburgh to convene the first-ever White House Frontiers Conference. The conference will bring together innovators from across the country to focus on how science and technology is shaping the 21st century, and particularly the role of innovation in building smarter and more inclusive communities. It will be an important discussion, and a timely one, as we are on the cusp of a key technological revolution that will change everyone’s lives in ways we can only dimly envision today.

Back in the 19th and 20th centuries, the railroad, the telegraph and the telephone vastly expanded the scope of commerce and transformed our conceptions of time and space. Now, the next generation of mobile networks holds a similar promise.

In each case, the infrastructure created by these earlier innovations became platforms on which others could build new enterprises and reach new markets. Built on clear standards and protocols (e.g., the gauge of railroad tracks, Morse Code, dial tone and phone numbers), they provided powerful capabilities that could be used by others for their own value-added purposes.

Those who built and operated these platforms did well, but they enabled many others to flourish, as well. As John Hagel from the Deloitte Center for the Edge has noted, successful platforms create rich ecosystems of resources that benefit all participants.

Platforms have emerged as one of the most significant models for internet-based businesses at the heart of our modern digital economy. Apple’s iTunes transformed the way music is distributed, while its App Store is responsible for creating an entire “app economy” that sustains tens of thousands of app developers. Facebook provided a framework that is being used by more than a billion people to share their lives with others and that has become a powerful channel for everything from news to advertising and commerce. Amazon not only sells merchandise directly but has also provided a platform that connects many other sellers to customers.

The growth of wireless broadband networks greatly amplified the reach and impact of platforms like these. The smartphone has become the primary means by which people stay connected, get information and conduct business in their everyday lives. There are currently some three billion smartphones in use globally today, and the number is projected to reach six billion — 70 percent of the world’s population — by 2020. Because these devices are used on the go, people depend on the simplicity, consistency and reliability that established digital platforms can provide.

And now wireless networks are on the brink of becoming exponentially faster, more pervasive and more versatile. The arrival of next-generation 5G-based networks in the next few years will provide what has been described as a uniquely powerful “platform for platforms” and is notably the foundation for the personal, local and national frontiers of innovation the Obama administration seeks to advance.

Offering “perceived infinite capacity,” 5G will provide the basis for the emergence of ubiquitous new wireless platforms that, in turn, will support the creation of an array of new services and businesses.

For example, the speed and responsiveness of 5G networks will be critical for supporting fleets of self-driving vehicles that will depend on getting instantaneous guidance “from the cloud.” The Internet of Things, which will put billions of devices online, will also make use of 5G’s capabilities, as will a rich new world of augmented reality (of which Pokémon Go provides a simple but compelling preview).

Beyond these much-heralded uses, we are likely to see the development of platforms to support everything from wireless payments and remote medical monitoring to the on-demand delivery of education and government services.

And while we may be able to discern the broad contours of this emerging hyper-connected world, it is a safe bet that it will also provide surprises that are the product of imaginative entrepreneurs who know how to leverage the power of platforms.

To realize this 5G future, policymakers at all levels of government and the private sector will need to address unprecedented challenges — some known, some not — that come with laying the technical foundation of this new technology. It will take real work and close cooperation, but the potential value of 5G to society and the economy is too great to delay.

WSJ : Future of Banking Looks Dark—Why That’s a Problem

Future of Banking Looks Dark—Why That’s a Problem
Institutions’ sagging profitability poses wider threats to economic growth

Seven years since the global financial crisis, banks don’t look like a source of trouble. They’re making money and have thickened their buffers against bad loans, while extensive new rules have excised much of the risk from their operations.
The stock market, though, tells a darker story. It thinks banks are barely able to earn more than what investors charge them for funds. The reasons are complex but boil down to this: rock-bottom or negative interest rates, tougher regulation and weak economic growth have severely squeezed bank profitability.
An industry that can’t earn more than its cost of capital is an industry destined to shrink. This matters to more than just the banks and their shareholders. When central banks ease the supply of credit, they rely on banks to transmit the benefits to the broader economy by making loans, handling trades and moving money between people, companies and countries. Shrinking, unprofitable banks hobble that transmission channel.

No politician wins votes by feeling sorry for banks. Quite the opposite: Democratic presidential nominee Hillary Clinton would make it easier to punish miscreant bankers while charging banks a new “risk” fee.

Some finance officials, however, are starting to worry.
“We don’t have a banking crisis, we have a profitability crisis,” Hans Jörg Schelling, Austria’s finance minister, said recently. Central banks in Europe and Japan are skittish about cutting interest rates even further for fear of undermining their banks.
The point is illustrated well by a recent study by Natasha Sarin and former Treasury Secretary Larry Summers, both of Harvard University, and presented at the Brookings Institution. They decided to assess the stability of banks not as regulators do, which usually means looking at capital (such as shareholders’ equity), but as markets do. They examined the behavior of common shares, preferred shares, options, credit default swaps and various valuation yardsticks.
They discovered that markets think banks are much more likely now to lose half their market value than before the crisis. They interpret this as a “decline in the franchise value of major financial institutions, caused at least in part by new regulations.” The counterintuitive implication: The bevy of rules designed to make banking safer may, by endangering their long-term viability, ultimately achieve the opposite.
One telling data point is the decline in the ratio of banks’ market value to the value their books say they are worth. For example, Bank of America Corp. and Citigroup Inc., which traded at about double their book value before the crisis, have since traded below, as have banks in France, Germany, Japan and Italy.
That means investors think that banks will be earning negative returns on their assets, after costs. And indeed, the Institute of International Finance, which represents global banks, finds that since 2010, European, Japanese and U.S. banks have on average been earning less than their cost of capital.
Regulation is part of the reason. To better buffer loan losses, banks must now hold more capital such as shareholders’ equity, which spreads​profits across more shares. To deal with sudden outflows of funds, they must hold more highly liquid short-term assets, such as Treasury bills, which earn less than loans.

This has been compounded by the sluggish economy, which has held back loan growth, and by monetary policy. Banks profit from the spread between the interest they charge on loans and pay to depositors. But loan rates have been pulled down as central banks hold short-term rates at or below zero and buy bonds, and banks are reluctant to pass that on to depositors by charging to hold their money. Moreover, when central banks buy bonds, they pay with newly created cash that sits on banks’ balance sheets earning nothing, or less.
This can explain a lot of the problems in Europe’s banks, including Deutsche Bank, which is facing a potential multibillion-dollar U.S. penalty over crisis-era mortgage activity. The German powerhouse has €123 billion ($135 billion) tied up in cash and central-bank deposits. Meanwhile, its investment banking revenue has been sapped by regulations and docile markets. George Karamanos, an analyst at Keefe, Bruyette and Woods, says if current interest rates persist, by 2020 European banks’ profits will drop 20% and Deutsche Bank will be unprofitable.
Wells Fargo & Co. seemed to separate itself from its peers by boosting the number of products such as accounts and credit cards each customer bought. But in the process, many customers ended up with accounts and cards they didn’t want. Not only did that business earn nothing for Wells, it brought a $185 million penalty, a Justice Department investigation and some $20 billion in lost market value.
Indeed, investors must now discount the possibility that any bank could be one scandal away from indictment and a crippling, multibillion-dollar fine. Banks have responded by exiting or downsizing businesses that carry the most reputational risk, such as international money transfers and issuing mortgages to less creditworthy borrowers.
Those who blame many of the economy’s ills on a wasteful and overgrown financial sector will no doubt cheer this retreat. Everyone else should worry.

WSJ : Biggest Economic Risk to Europe Lies in the Politics

Biggest Economic Risk to Europe Lies in the Politics
Some policy makers say the potential for another shock to the eurozone is alarmingly high, Simon Nixon writes.

It’s the politics, stupid. That was the consensus view on Europe among policy makers and finance chiefs at the International Monetary Fund’s annual meetings in Washington last week. The baseline outlook for the eurozone economy is a continued modest recovery. The IMF itself is forecasting growth this year of around 1.7%, falling unemployment, increased bank lending and a gradual pickup in inflation next year. The U.K. may have, in the eyes of many economists, engaged in an act of economic self-harm by voting to leave the European Union, but few expect much direct economic contagion to the continent.
It is the political contagion that they worry about: the risk that other countries may act in ways that appear contrary to their rational economic self-interest.
Indeed, some policy makers fear that the eurozone may be just one shock away from disaster—and that the risk of another shock is alarmingly high. There are plenty of candidates. Italy tops many people’s list, with opinion polls suggesting voters are evenly split over whether to back Prime Minister Matteo Renzi’s constitutional overhauls in a December referendum.

The markets are increasingly betting that Mr. Renzi will remain prime minister even if he loses the vote, avoiding the need for new elections that might bring the populist, euroskeptic 5 Star Movement to power. But Mr. Renzi may struggle to cling on if he loses by a wide margin. Even if he does, he may not be able to do much, raising fresh doubts about Italy’s long-term growth and making it harder for banks to raise capital. That could reignite concerns over Italy’s financial stability and the sustainability of its government debt.
Portugal’s difficulties were also much-discussed in Washington. The country has a debt-to-gross domestic product ratio above 130% and a government that is widely perceived to have unwound its predecessor’s economic overhauls. Its fortunes now hinge on Canadian rating agency DBRS, which will examine next week’s draft budget before deciding whether to maintain Lisbon’s investment-grade credit rating. That in turn will determine whether the European Central Bank can continue to buy Portuguese government bonds.
Even if Lisbon passes this test, its next hurdle is to persuade investors to invest up to €20 billion ($22 billion) in the Portuguese banking system, starting with the sale of €1 billion of subordinated debt in state-owned Caixa Geral de Depositos. Failure could jeopardize the government’s efforts to sell Novo Banco, the bank salvaged from the collapsed Banco Espírito Santo, and the efforts of Millennium BCP to raise capital. A banking crisis could force Lisbon to seek a new bailout, inevitably raising questions about whether government bondholders should face losses.
Meanwhile, Greece remains an ever-present source of risk. Eurozone finance ministersagreed this week to disburse the next €2.8-billion tranche of its current bailout. But Athens is likely to run out of money again next year. Furthermore, the next bailout installment will hinge on a full program review and will need to be sanctioned by a vote in the German Bundestag.

That would set the stage for another showdown between Germany and the IMF, which has so far refused to participate in the bailout until Greece gets substantial debt relief, which Berlin continues to resist. German Finance Minister Wolfgang Schäuble has already twice persuaded the Bundestag to back bailouts with promises of imminent IMF involvement. It is hard to see how he could do so a third time, raising the prospect of a new crisis just ahead of German national elections next fall.
Any of these scenarios could trigger a vicious spiral in the eurozone. Policymakers fear that in the current febrile environment—and with elections looming in France, Germany and the Netherlands—the eurozone’s capacity to find collective political responses to shocks has been reduced.
At the same time, the European Central Bank’s ability to ride to the eurozone’s rescue has also been weakened amid fears that its monetary policy may be doing more harm than good: ECB officials in Washington acknowledged the harmful side effects of negative interest rates and flat yield curves on bank business models as lending margins are compressed.
The longer this persists, the greater the risk that some lenders will reduce the availability or raise the cost of loans and that some banks will find it even harder to raise capital. Meanwhile, ultraloose monetary policy has political side effects, not least in Germany, where some fear it is helping fuel support for the euroskeptic AfD party.
Of course, a vicious spiral can also become a virtuous circle, if the eurozone can navigate the political rapids ahead over the next year. Confidence would improve, which would make it easier for banks to raise capital. This would allow them to speed up their efforts to deal with bad debts, giving businesses more confidence to invest and creating an easier economic climate in which governments can deliver necessary structural reforms.
But even such a positive political shock would come with medium-term risks. After all, Germany is already close to full employment and wages are rising, raising the prospect that eurozone inflation could return to its target sooner than expected and bring an earlier-than-expected end to the ECB’s quantitative-easing program. That would remove vital support for the bonds of some of eurozone’s most highly indebted sovereigns. A politically rational eurozone would be thinking of ways to mitigate this risk now.

WSJ : Plunging Ericsson Faces Towering Challenge

Plunging Ericsson Faces Towering Challenge
Economic weakness in emerging markets isn’t the mobile-network builder’s core problem

The task of reviving Ericsson is getting tougher by the quarter.
Third-quarter results are looking so bad the Swedish telecom giant released provisional numbers early. Sales in the crucial networks division, which builds mobile infrastructure for the likes of Verizon and Vodafone, fell 19% year over year. The second-quarter decline was 14%, so the trend is worsening.
Emerging markets are one problem. Countries facing economic problems—the company cited Brazil, Russia and the Middle East—have reduced spending on mobile networks. Yet Europe, too, is providing less work upgrading 3G towers to 4G.

This is particularly problematic because these upgrades were disproportionately profitable. Ericsson said its gross margin in the third quarter was 28%—6 percentage points lower than in the comparable period of 2015. Combined with restructuring costs of 1.3 billion Swedish krona ($150 million), this all but wiped out the company’s third-quarter operating profit.
The shares plunged 17% in morning trading, but aren’t obviously cheap at 11 times forward earnings: As forecasts are trimmed this multiple will drift back up. Shares in Ericsson’s key competitor Nokia trade at 16 times, even after falling 5% in sympathy, but a premium is justified by the Finnish company’s broader business base and cost-cutting record.
Axing costs is the obvious weapon Ericsson can use to fight back, but it won’t resolve the central problem: a core technology hardware business that is not just cyclical but also commoditized. Except in the U.S., where security concerns smother competition, it is increasingly hard for Ericsson or Nokia to distinguish themselves from Chinese network-builders Huawei and ZTE.
It is almost three months since ex-boss Hans Vestberg’s departure. His yet-to-be-named successor needs to reinvent for the software age a company that manufactured some of the world’s first telephones. Little wonder candidates are proving hard to find.

>>> US CLose Dow +0.09% S&P +0.11% Nasdaq -0.15% Russell -0.03%

Closing Market Summary: Closing Market Summary: Averages Finish Little Changed Following Fed Minutes

The stock market ended Wednesday on a flat, and relatively mixed, note as the minutes from the FOMC's September policy meeting failed to disturb an otherwise quiet trading session. The S&P 500 (+0.1%) settled a hair below its 100-day simple moving average (2139.44) while the Nasdaq Composite (-0.2%) finished on a slightly lower note. 

Rising bond yields and a strengthening dollar remained focal points in today's action as investors looked to substantiate their rate hike outlook with the minutes from the FOMC's September 20-21 meeting. 

Bond yields and the greenback rose through the first half of trade as a solidifying rate hike outlook provided support. Market participants continued to discount the possibility of a November rate hike while betting on a policy shift at the December meeting. According to the CME's Fed Watch Tool, the probability of a rate hike at the November meeting is just 9.3% while the probability of a hike at the December meeting sits at 69.9%. 

The minutes from the FOMC's September policy meeting indicated that there were a number of arguments for raising rates in September, but that the committee opted to wait for further data. All in all, there wasn't really any "new" news in the minutes, which essentially reinforced preconceived policy notions held by the market ahead of their release.  

Those notions revolved around a belief that the next hike in the target range for the fed funds rate will most likely occur at the December 13-14 FOMC meeting, barring any big economic potholes hit along the way.

The U.S. Dollar Index (97.92, +0.23, +0.24%) tested, but failed to clear the psychological 98.00 price level while the yield on the 10-yr note finished higher by one basis point at 1.77%. 

Although long-term rates rose again today, the real estate (+1.3%), utilities (+1.0%), telecom services (+0.6%), and consumer staples (+0.5%) sectors -- so-called "yield plays" -- all outperformed on Wednesday in a move that had the semblance of being a bounce from short-term oversold conditions.  For instance, entering Wednesday's trade, the S&P 500 utilities sector had fallen 9.4% over the last three months. 

The S&P 500 (+0.1%) finished the session off its high, having failed earlier in the day to clear technical resistance in the 2144/2146 area. 

Eight sectors finished in positive territory while three -- health care (-0.6%), energy (-0.4%), and materials (-0.2%) -- ended the day with a loss. 

Retail names outperformed in the consumer discretionary space (+0.4%), evidenced by the 0.8% gain in the SPDR S&P Retail ETF (XRT 43.68, +0.33). Separately, Amazon (AMZN 834.09, +3.09) finished ahead of the broader market after Cantor Fitzgerald raised its price target on the stock to $1,000 from $835.

The financial sector (+0.2%) displayed relative strength on a slight steepening in the yield curve and extended its gain for the month to 1.1%, helped also by insurers and asset managers.

Biotechnology underperformed once again in the health care sector (-0.6%), evidenced by the 2.5% decline in the iShares Nasdaq Biotechnology ETF (IBB 270.13, -6.87), which closed below its 200-day moving average -- a move that will be regarded as a negative technical development. Mylan (MYL 37.07, -1.24) fell 3.2% as it pulled back from an 8.2% gain on Monday.

Health care providers also weighed as Humana (HUM 168.44, -9.09) tumbled 5.5%. The stock fell after the managed care provider announced that the number of 4-star plan members declined to 1.17 million from 2.15 million in the prior year. The company also raised its full-year earnings guidance.  

The energy sector (-0.4%) underperformed amid a 1.1% decline in crude oil futures ($50.15/bbl, -$0.56). As a reminder, the American Petroleum Institute will release its weekly inventory report after today's close. Meanwhile, the Department of Energy will release its more influential inventory report tomorrow morning at 11:00 a.m. ET.

Today's trading volume fell came in below the recent averages of 926 million as 655 million shares changed hands at the NYSE floor. Today's low volume was partly attributed to the Jewish holiday of Yom Kippur, which began at sunset on Tuesday and will continue until nightfall today.

Today's economic data included the weekly MBA Mortgage Index and the Job Openings and Labor Turnover Survey for August:

  • The MBA Mortgage Index indicated that mortgage applications fell 6.0% in the week ending October 8. This followed a 2.9% increase in the prior week.
  • The August Job Openings and Labor Turnover Survey showed that job openings came in at 5.443 million from a revised 5.831 million (from 5.871 million) in July.

Tomorrow's economic data will include weekly initial claims report (consensus 255k) and the Import/Export Price report for September, both of which will cross the wires at 8:30 a.m. ET. Separately, the Treasury Budget for September will be released at 2:00 p.m. ET. 

  • Russell 2000: +12.4% YTD
  • S&P 500: +4.7% YTD
  • Nasdaq: +4.6% YTD
  • Dow Jones: +4.1% YTD