- Indices are moving lower once again as apprehension builds over the upcoming
Senate vote on a revised financial bailout bill. Last night the Senate
leadership of both parties agreed to hold a vote on the bill tonight, while
House Republican leadership said they would support the revised Senate bill.
Note that the Senate version of the bill includes an increase in FDIC deposit
insurance to $250K from the present level of $100K, suspension of mark-to-market
accounting rules, assorted tax breaks and $17B in tax credits for renewable
energy. Other reports circulated last night that the House republicans were
drafting an alternative bill that would supplant the Paulson plan. Also adding
to the downward momentum is today's September ISM Manufacturing report, which
came in well below expectations, overshadowing an ADP September employment
report showing only a slight decline of 8,000 jobs (versus the 50K expected)
and the flat August construction spending numbers (versus expectations of a
slight decline). Overnight Libor has come off yesterday's record highs as
funding constraints tied to the end of Q3 passed, but the three-month Libor
remains elevated. Credit markets remain deeply troubled, a state of affairs
brought into sharp relief when GE-8% was forced to reassure investors that it
still has sufficient access to short-term credit. Also adding to the credit
jitters were reports that holders of bonds in Sigma Finance Corp, a $27B UK
investment company, may see significant losses if lenders begin selling
collateral. Crude is loosing ground, back around $96, while gold is up
marginally at $885. Selected financial firms are in positive territory this
morning, with C, BAC, JPM and WFC up 2-5%, while MS and GS both under pressure
in negative territory. F-9% and GM-3% are both under pressure after President
Bush signed the $25B auto industry bailout package last night. Selected solar
stocks JASO, ESLR, SOLF and TSL are up 3-4% on news about renewable energy tax
credits in the revised Senate financial bailout bill, while FSLR and SPIR are
around even, off earlier highs. Dry bulk shipping names DRYS, EGLE, DSX and EXM
are all down 4-7% after the Baltic Dry Index fell again this morning, while GNK
is down 12%.
- Treasury prices are rallying again as money comes out of stocks. The US
curve is a bit steeper with the 10-year yields 3.7% and the 2-year offering
1.82%. Government bond markets saw a renewed flight to safety bid after reports
of the widening of credit default swaps for General Electric and a
substantially weaker than expected Sep ISM manufacturing reading. Following the
ISM data the Nov fed fund future briefly priced in better than a 50% chance of
a 50 bp cut by the next FOMC meeting but those odds have since backed off.
- The dollar maintained a firm tone as markets enter the final quarter of the
calendar year, particularly against the euro and pound. Dealers were noting
reportedly sold over â‚¬5B in euros in today's session. One player said dealers
is short on dollars, citing recent actions by its central bank. The Russian
Central Bank noted it would begin making loans to rated banks without
collateral and help refinance foreign debts. The credit market stress and
liquidity shortage is also being viewed as contributing to the firmer USD.
Another factor is comments from the German finance minister, who said Germany
does not view the current situation as a crisis and would not take part in the
planned EU meeting in Paris this
weekend. The EUR/USD is back below the 1.40 handle and the GBP/USD is off 140+
pips as it broke below the 1.77 area. The three-month USD Libor fixing was
expected to level off as the new quarter got underway, but that was not the
case, as it rose by 10 basis points to 4.15%, hand in hand with euro and pound
- Risk aversion is reverberating in the JPY and CHF carry-related pairs.
EUR/JPY is below the 148 area while the EUR/CHF cross fell 100+ pips to 1.5690.
The global growth environment showed its fragility as both Europe
and the US
reported falling expectations PMI manufacturing data. The US ADP employment was
certainly better than expected, but economists noted this series was collected
before the recent credit-related events of mid-late September. European
equities continued to see earlier gains evaporate thanks to delay in the
passage of a financial market package.
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