Morning Call: Italy's budget woes weigh on U.S. and European stock; Dec E-mini S&Ps down -0.29%; Euro Stoxx 50 down -0.83% at a 3-week low; Dec copper down -0.36% at a 2-week low.
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 ESZ18 - S&P 500 E-Mini
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ESZ182,610.25-35.25-1.33%
CLX1869.17s+0.05+0.07%
DXY0097.484+0.420+0.43%
ZNZ18120-180+0-090+0.23%
GCZ181,239.6-3.1-0.25%
SIZ1814.490-0.239-1.62%
HGZ182.7495-0.0130-0.47%
RBX181.7680s-0.0379-2.10%
IRBT85.15-2.54-2.90%
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GE7.03-0.17-2.36%
MOV32.75+0.52+1.61%
ASMB21.83-0.92-4.04%
LMT288.90-3.33-1.14%
MRK76.67-1.79-2.28%
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KALA5.30-0.21-3.81%

Overnight Markets and News

Dec E-mini S&Ps (ESZ18 -0.20%) this morning are down -0.29% and European stocks are down -0.83% at a 3-week low as Italian bank stocks slumped and government bond yields soared after the European Commission rejected the Italian government's plan for a wider budget deficit. The yield on Italy's 10-year bond rose to a 4-1/2 year high of 3.63% after EU officials said that the Italian government's plan for a 2.4% budget deficit of GDP in 2019 will put them in breach of EU austerity rules. Weakness in energy stocks added to losses in the overall market as Nov WTI crude oil (CLX18 -1.49%) dropped -1.35% to a 1-week low. European stocks were also weighed down after German Aug industrial production unexpectedly declined for a third month. Asian stocks settled mostly lower: Japan -0.80%, Hong Kong -1.39%, China -3.72%, Taiwan -0.58%, Australia -1.38%, Singapore -0.88%, South Korea -0.47%, India +0.28%. Asian stock markets sold-off as China reopened after a week long holiday with the Shanghai Composite and the Nikkei Stock Index both falling to 2-week lows. The Chinese yuan sank to a 1-3/4 month low against the dollar after the PBOC lowered the reserve requirement ratio for banks the fourth time this year and a decline in Japanese exporter stocks led the Nikkei lower after the yen climbed to a 1-week high.

The dollar index (DXY00 +0.30%) is up +0.39%. EUR/USD (^EURUSD -0.32%) is down -0.46% as the Italian political crisis and unexpected drop in German Aug industrial production weighed in the currency. USD/JPY (^USDJPY -0.32%) is down -0.31% at a 1-week low as the sell-off in stocks boosted the safe-haven demand for the yen.

Dec 10-year T-note prices (ZNZ18 +0-030) are up +3 ticks.

German Aug industrial production unexpectedly fell -0.3% m/m, weaker than expectations of +0.3% m/m.

The Eurozone Oct Sentix investor confidence fell -0.6 to 11.4, weaker than expectations of -0.4 to 11.6.

The PBOC lowered the reserve requirement ratio for banks by 100 bp to 14.50% from 15.50% effective October 15.

The China Sep Caixin services PMI unexpectedly rose +1.6 to 53.1, stronger than expectations of -0.1 to 51.4.

U.S. Stock Preview

Key U.S. news today includes: (1) St. Louis Fed President James Bullard (non-voter) speaks at the Lee Kuan Yew School of Public Policy in Singapore, (2) Columbus Day Holiday; stock and commodity markets open, cash Treasury and forex trading closed.

Notable Russell 2000 earnings reports today include: none.

U.S. IPO's scheduled to price today: none.

Equity conferences during the remainder of this week: none, OneTrust PrivacyTECH Conference on Mon, IQPC CX Exchange for BFSI on Tue, EXCHANGE Conference on Tue, Bioanalytical & Formulation Summit 2018 on Tue, Capital Link New York Maritime Forum on Tue, Global Gaming Expo on Tue.


Market Comments

Dec S&P 500 E-minis (ESZ18 -0.20%) this morning are down -8.50 points (-0.29%). Friday's closes: S&P 500 -0.55%, Dow Jones -0.68%, Nasdaq 100 -1.21%. The S&P 500 on Friday fell to a 3-1/2 week low and closed lower on the continued rise in T-note yields and on the +134,000 increase in U.S. Sep non-farm payrolls, weaker than expectations of +185,000. In addition, technology stocks sold off sharply for a second day as the Nasdaq Composite fell to a 1-1/2 month low. There were also concerns that the U.S.-China trade spat will escalate after Bloomberg news reported that China infiltrated U.S. companies by hacking hardware. Stocks found some support on the -0.2 point decline in the U.S. Sep unemployment rate to a 48-3/4 year low of 3.7%, stronger than expectations of -0.1 to 3.8%.

Dec 10-year T-notes (ZNZ18 +0-030) this morning are up +3 ticks. Friday's closes: TYZ8 -6.00, FVZ8 -2.25. Dec 10-year T-notes on Friday dropped to an 8-1/3 year nearest-futures low and closed lower. T-note prices were undercut by the bigger-than-expected decline in the U.S. Sep unemployment rate to a 48-3/4 year low of 3.7% and by increased inflation expectations after the 10-year T-note breakeven inflation rate rose to a 4-1/2 month high. T-notes found some underlying support from the continued sell-off in stocks.

The dollar index (DXY00 +0.30%) this morning is up +0.375 (+0.3%), EUR/USD (^EURUSD -0.32%) is down -0.0053 (-0.46%), and USD/JPY (^USDJPY -0.32%) is down -0,35 (-0.31%) at a 1-week low. Friday's closes: Dollar Index -0.127 (-0.13%), EUR/USD +0.0010 (+0.09%), USD/JPY -0.19 (-0.17%). The dollar index on Friday closed lower on the smaller-than-expected increase in U.S. Sep non-farm payrolls and on the slide in the S&P 50 to a 3-1/2 week low, which undercut USD/JPY on increased safe-haven demand for the yen. The dollar was supported by higher T-note yields that improved the dollar's interest rate differentials.

Metals prices this morning are weaker with Dec gold (GCZ18 -0.68%) -8.4 (-0.70%), Dec silver (SIZ18 -1.09%) -0.174 (-1.19%) and Dec copper (HGZ18 -0.02%) -0.010 (-0.36%) at a 2-week low. Friday's closes: Dec gold +4.0 (+0.33%), Dec silver +0.059 (+0.40%), Dec copper -1.45 (-0.52%). Metals on Friday settled mixed with Dec copper at a 2-week low. Metals prices were supported by a weaker dollar and by the slump in stocks, which boosted the safe-haven demand for precious metals. Copper prices fell on concern that rising global interest rates will slow economic growth and curb demand for industrial metals.

Nov WTI crude oil prices (CLX18 -1.49%) this morning are down -$1.00 a barrel (-1.35%) and Nov gasoline (RBX18 -1.58%) is down -3.28 (-1.57%). Friday's closes: Nov crude oil +0.01 (+0.01%), Nov gasoline -1.43 (-0.68%). Nov crude oil and gasoline on Friday settled mixed. Crude oil prices were boosted by a weaker dollar and by concern that Saudi Arabia and Russia may not be able to pump enough crude to make up for a supply crunch caused by falling Venezuelan and Iranian output. Industrial metals prices were undercut by the slide in stock prices, which reduces confidence in the economic outlook and energy demand.

Overnight U.S. Stock Movers

iRobot (IRBT +0.88%) was downgraded to 'Neutral' from 'Overweight' at Piper Jaffray with a price target of $90.

Conagra Brands (CAG +0.15%) was upgraded to 'Buy' from 'Hold' at UBS with a price target of $40.

Penumbra (PEN -1.59%) was rated a new 'Outperform' at RBC Capital Markets with a price target of $174.

General Electric (GE +4.11%) rose 2% in pre-market trading after it was upgraded to 'Overweight' from 'Equal weight' at Barclays with a price target of $20.

Movado (MOV +1.21%) was upgraded to 'Outperform' from 'Market Perform' at Cowen with a price target of $50.

Assembly Biosciences (ASMB -4.58%) was upgraded to 'Buy' from 'Neutral' at B Riley FBR with a price target of $42.

Lockheed Martin (LMT -0.64%) was awarded a $390.8 million contract from the U.S. Air Force for Joint Air-to-Surface Standoff Missile production for 360 extended range missiles, 3 foreign military sales separation text vehicles, one FMS flight test vehicle-live fire and tooling and test equipment.

Merck (MRK -0.27%) may move higher initially this morning after the FDA approved an expanded use of Merck's Gardasil 9 vaccine to include men and women aged 27 through 45 years old to prevent certain cancers and diseases caused by the 9 HPV types covered by the vaccine.

Ford Motor (F -0.33%) may move higher initially this morning after the Detroit Free Press reported after the close Friday that Ford plans to cut an unidentified number of jobs, flatten business operations, and create a "more efficient company."

Kala Pharmaceuticals (KALA -2.21%) jumped 8% in after-hours trading after RA Capital disclosed it had purchased 2.42 million shares of KALA on Oct 3 and now becomes the largest shareholder with a 14% stake in the company.