Stock Market - Wednesday, November, 30 2011

Italy facing insolvency. EU finance ministers meeting last night were told Italy is at risk of insolvency, The Guardian reports, with Mario Monti urged to do more to shore up the country's finances and avoid a sovereign liquidity crisis. It's perhaps not a surprise, therefore, that Reuters has resurrected speculation that Italy has held preliminary talks with the IMF about financial aid.

EU looks to IMF for help with rescue fund. With Italy facing bankruptcy, the EU's finance ministers yesterday came to a late-night agreement on two possibilities to expand the EFSF bailout fund: a 20%-30% risk protection for bondholders, and the creation of "co-investment funds" to combine public-private financing for bond purchases. However, ministers couldn't say by how much they would leverage the EFSF because of deteriorating market conditions, so they are looking to the IMF to help out. How enthusiastic non-EU countries will be is the $1T question.

S&P goes on downgrade spree of banks. S&P yesterday lowered the rating on 37 of the largest financial institutions in the world, including almost all major U.S. banks, with Bank of America (BAC), Citigroup (C), Morgan Stanley (MS) and Goldman Sachs (GS) among those hit. The agency may have telegraphed the move as part of the application of its revised bank criteria. Oddly, several European banks were left unscathed - is there more to come?

Major firms prepare for euro fragmentation. Siemens (SI) and Diageo (DEO) are among the multinational companies that are preparing for a possible eurozone break-up. Their concerns include: banking system instability, currency devaluations that would make imported brands very expensive, and a cloudy legal future for existing cross-border loans and contracts.

China eases monetary policy. China has cut its reserve ratio for the first time in nearly three years, lowering it by 50 bps to 21% from record highs. The loosening of monetary policy comes amid slowing growth and easing - but still high - inflation, and helped turn risk markets around this morning.

EU proposes plan to split up top four auditors. The world's top four accounting firms - E&Y, Deloitte, KPMG, and PWC - will have to separate their audit activities from non-audit operations, such as tax and other advisory services, under a draft EU law. European Commissioner Michel Barnier wants to eliminate conflicts of interest and the shortcomings highlighted by the financial crisis, and to end the "oligopoly" in the sector.

Inflation stable in eurozone, unemployment rises. Eurozone inflation remained at 3% in November for the third month in a row, in line with forecasts but well above the ECB's target of just below 2%. However, the overall figure is out of kilter with what MKM's Michael Darda calls a "real risk of a deflationary collapse in the periphery." Meanwhile, unemployment rose to a record 10.3% in October from 10.2% in September, also in line with predictions.

Pfizer hopes to hold onto customers as Lipitor patent ends. The patent on Pfizer's (PFE) Lipitor, which has generated over $130B in sales, ends today, although the company is hoping it can hold onto a third of the three million Americans who take it. At the moment, only Watson Pharmaceuticals (WPI) will be able to sell a generic version in the U.S., but after six months any firm will be able to.

Small banks slash jobs. Smaller U.S. banks that had held back on broad cost-cutting are now laying off employees as they try to adapt to tougher competition, profit-squeezing regulations and poor loan volume. More than 2,500 banks reduced their staff in Q3, with the cuts more likely to be part of a "new normal" than a temporary downsizing.

Silver Lake, Microsoft bid values Yahoo at $20.6B. The consortium led by Silver Lake and Microsoft (MSFT) has bid around $16.60 a share for a minority stake in Yahoo (YHOO), sources say, somewhat lower than an offer made by TPG Capital. Silver Lake's proposal values Yahoo at $20.6B, about 6% higher than its market capitalization at yesterday’s close.

FCC slams AT&T/T-Mobile deal. Despite approving AT&T's (T) request to withdraw its T-Mobile (DTEGY.PK) application, the FCC yesterday issued a blistering 109-page report saying the $39B deal would limit competition in virtually every U.S. city. Though the report carries no legal weight, the FCC said it released it for the sake of transparency.

GOP to back extending payroll tax cut. The GOP will support extending payroll tax relief for another year, Senate Republican leader Mitch McConnell said yesterday following a meeting with his colleagues. Some analysts estimate the tax cut boosts the economy by as much as 1.5 percentage points, although it also costs $168B. McConnell added that the Senate and House would work to forge a deal to extend unemployment benefits as well.

Empire State Building could be part of IPO. It's been owned by Prudential Insurance and coveted by Donald Trump, but now members of the public may soon be able to buy into the Empire State Building. The current custodians, the Malkin family of New York, yesterday filed plans to create a publicly traded real-estate investment trust that would include the skyscraper. More details will be forthcoming in about three months.

U.S., EU to explore free-trade agreement. The U.S. and EU agreed yesterday to work on reducing tariffs and regulatory barriers between the two regions. "Everything is on the table," said White House adviser Michael Froman, including negotiating a full-fledged free-trade pact.

Today's Markets:
In Asia, Japan -0.5% to 8435. Hong Kong -1.5% to 17989. China -3.3% to 2333. India +0.7% to 16123.
In Europe, at midday, London +1.1%. Paris +0.9%. Frankfurt +1.7%.
Futures at 7:00: Dow +0.7%. S&P +0.8%. Nasdaq +0.9%. Crude +0.3% to $100.09. Gold +0.1% to $1720.40.

Wednesday's economic calendar:
7:00 MBA Mortgage Applications
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 ISM New York Business Index
8:30 Productivity and Costs
9:45 Chicago PMI
10:00 Pending Home Sales
10:30 EIA Petroleum Inventories
2:00 PM Fed's Beige Book
3:00 PM USDA Ag. Prices

Earnings Results: Companies that beat EPS expectations last night and today include OmniVision Technologies ([[OVTI]]).

Those that missed forecasts include Ralcorp ([[RAH]]), SeaDrill ([[SDRL]] may not be comparable to consensus).

For full real-time earnings coverage, please click here.

Notable earnings before Wednesday's open: [[AEO]], [[SDRL]]

Notable earnings after Wednesday's close: [[ARO]], [[FNSR]], [[GES]], [[SNPS]]

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