‘Millions saw the apple fall, Newton was the only one who asked why?’ — Bernard Baruch

1. Jobs Report Keeps Fed on Hold for Now — WSJ, the slow jobs report makes it harder for the Federal Reserve to make decisions about its $85 billion monthly bond-buying programs. This assures that the Fed won’t act at its Oct. 29-30 policy meeting. The next jobs report, for October, could be skewed by the government shutdown, which disrupted the data collection process and which will include the effects of government workers on furlough. The Fed will have an additional jobs report to go on by its Dec. 17-18 meeting; the Bureau of Labor Statistics reports November jobs data on Dec. 6.
2. China major banks write off 22.1 billion yuan ($3.65 billion)debt — from Bloomberg, stated that China’s five major banks have written off 22.1 billion yuan ($3.65 billion) of debt in the first six months of the year that couldn’t be collected, compared to 7.65 billion yuan a year earlier. The move is more than likely a cleaning-up process ahead of what may be a fresh wave of defaults in the world’s second-largest economy.
3. ECB to stress test top eurozone banks — the European Central Bank plans to carry out comprehensive stress tests on 128 top eurozone banks over the next year as it aims to build confidence in the financial sector by improving transparency and implementing “corrective action” where needed.
4. Department of Justice probes nine banks on mortgage-backed securities(MBS) — FT, U.S. Department of Justice is probing at least 9-banks about their sales of mortgage-backed securities. The investigations, which span U.S. attorney’s offices from California to Massachusetts, include the largest banks that underwrote and sold residential mortgage-backed securities. They include Bank of America (BAC), Citigroup(C), Credit Suisse, Deutsche Bank(DB), Goldman Sachs(GS), Morgan Stanley(MS), Royal Bank of Scotland(RBS), (UBS) and Wells Fargo(WFC).
5. Countrywide (part of Bank of America) found guilty in U.S. mortgage suit — a federal jury has found Bank of America’s (BAC) Countrywide unit liable for defrauding Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) by selling them thousands of defective mortgages. The judge will determine the amount of the penalty – the U.S. has requested $848M, the gross loss to the GSEs as calculated by its expert witness.
6. Chinese shares fall as People Bank of China (PBOC) tightening continues — Chinese markets (FXI) continued to drop as short-term money market rates continued to rise after the Bank of China again refrained from injecting liquidity into the market. The overnight rate touched 7.5% at one point and the benchmark seven-day hit 6.94%.

The week ahead — Economic data from Econoday.com:

“Be who you are and say what you feel, because those who mind don’t matter and those who matter don’t mind.” — Bernard Baruch

1. Forex Manipulation Probes at JPM Trader — WSJ the U.K. – in its investigation of the potential manipulation of currency markets – is looking at the activities of former RBS (RBS) trader Richard Usher, who now works for JP Morgan (JPM).
2. Regeneron (REGN) drug slashes cholesterol in late-stage trial — Reuters, a new type of cholesterol drug being developed by Regeneron Pharmaceuticals Inc (REGN) and Sanofi SA, when used by itself, cut levels of “bad” LDL cholesterol almost in half in the first of a dozen late-stage trials of the injectable medicine. Regeneron and Sanofi’s treatment, called Alirocumab, is part of a new class of injectable cholesterol medicines that block a protein called PCSK9. Analysts suggested drugs could each generate sales of $3B or more.
3. Congress Agreed to end Government Shutdown — Congress approved a deal to finance the U.S. government until January 15 and raise the debt limit so that the country can continue to increase its borrowing until February 7.
4. Stock Market Back to Overbought — from BIG, just from this time last week, the S&P 500 and all ten sectors closed out the day in overbought territory. Sectors such as Energy, Financials and Health Care at extreme over-bought levels (>2 standard deviations above the 50-day moving average).

5. Latest AAII Bullish Sentiment — the lastest report from AAII shows investors have been growing increasingly bullish. Over the last week, bullish sentiment increased from 41.33% to 46.28%. This is the third straight week where bullish sentiment increased.

6. China’s GDP growth accelerates to 7.8% — China’s economy expanded at its fastest rate this year in Q3, rising 7.8% vs 7.5% in Q2. The growth reflected a “mini fiscal stimulus” that included railway spending and tax cuts.

The week ahead — Economic data from Econoday.com:

“The risk of a wrong decision is preferable to the terror of indecision.” – Maimonides

1. Obama Picks Janet Yellen as Fed chief Replacing Bernanke — President Obama nominated Janet Yellen as the first woman Chairperson of the Federal Reserve. The Senate still have to confirm the appointment of Yellen.
2. Refiners exporting record amounts of fuel — the U.S. energy boom has helped allow refiners to export more fuel than ever, with sales abroad hitting a record 3.8M barrels a day in July, almost 65% above the 2010 level. U.S. refiners are increasingly using locally produced crude that is cheaper than North Sea oil; they can then sell products such as gasoline, diesel and jet fuel to overseas customers at bargain prices. Companies that are benefiting include Marathon Petroleum (MPC), Valero Energy (VLO) and Enterprise Products Partners (EPD).
3. Chinese Premier Sees China Growth Topping 7.5% in First Nine Months — Bloomberg, Chinese Premier Li Keqiang said the nation’s economic growth probably exceeded 7.5 percent in the first nine months of the year
4. Japan’s machinery orders rise to highest since 2008 — Japan’s machinery orders, a leading capex indicator, reached the highest level in five years in August, climbing 5.4% on month to ¥819.3B ($8.4B) vs no growth in July. The increase is important for Japan’s government especially because one of its aims is to boost corporate investment as part of its economic reforms.
5. Most on FOMC members continue to see taper Bond Buy later this year — the minutes of the September 17-18 meeting show most members on the FOMC expect the tapering of the Fed’s QE program to start later this year. The decision not to reduce the bond-buying last month a “close call.” FOMC members were aware that the non-taper would be a surprise to the markets.
6. US overtaking Russia as top oil producer — Reuters, the US will become the world’s largest oil producer next year overtaking Russia, thanks to the American shale oil boom. The IEA said “With output of more than 10 million barrels per day for the last two quarters, its highest in decades, the nation is set to become the largest non-OPEC liquids producer by the second quarter of 2014, overtaking Russia. And that’s not even counting biofuels and refinery gains,”

The week ahead — Economic data from Econoday.com:

“October. This is one of the peculiarly dangerous months to speculate in stock. The others are, July, January, September, April, November, May, March, June, December, August and February” — Mark Twain

1. Earnings at top five banks seen taking major hit — analysts have cut their earnings estimates for the top five U.S. banks by over $1B in total, due to increasing fears about a sharp fall in trading revenue – especially from fixed-income operations – and higher legal costs. JPMorgan (JPM) has been particularly affected, with consensus for net income down $526M to below $5B. The company’s legal woes are seen adding $2B to expenses. Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS) and Citigroup (C) are the other banks to be affected.
2. Abe Orders Japan’s First Sales-Tax Increase Since ’97 — Bloomberg, Japan will go through with a plan to raise sales tax in April to 8% from 5%, a move that is set to raise ¥8T. To offset the economic impact of the hike, Prime Minister Shinzo Abe has unveiled a ¥5T ($51B) stimulus package that will include spending on public works and tax breaks to encourage companies to boost capital expenditures and wages.
3. ‘Obamacare’ launches amid government shutdown — BBC, a central provision of President Barack Obama’s healthcare reform law has taken effect, having survived Republicans’ years-long effort to undermine it. The opening of the private health insurance marketplaces, or exchanges, was the culmination of more than three years of political combat in Washington over the Patient Protection and Affordable Care Act, signed into law by President Barack Obama in 2010 and known to both sides as Obamacare.
4. PMI surveys show eurozone recovery gaining momentum — Eurozone services PMI climbed to 52.2 in September from 50.7 in August, while composite output rose to 52.2 from 51.5. “The eurozone enjoyed its strongest quarter of expansion for just over two years in the third quarter,” says Markit, adding that this bodes well for further growth in Q4. Germany led the way, France returned to expansion, Spain stabilized, and Ireland and Italy impressed.

The week ahead — Economic data from Econoday.com: