- The unremitting, disheartening economic news hammered US equity markets in
the early going. The DJIA, S&P 500 and Nasdaq all traded at fresh
multi-year lows. Indices are well off their worst levels and seen green, but
around the S&P 500 was 50%
below its high in October, 2007, while the Nasdaq and DJIA were hitting levels
last seen in early 2003. The latest bout of risk aversion was inspired by a
toxic combination of deflation fears, Congressional inaction on the auto
industry bailout, surging unemployment claims hitting highs last seen in 1982
and the Philly Fed index plunging to lows from 1990. The VIX rose above 80 for
the first time in three weeks while Treasury yields moved to historic lows on
the short end. The equity weakness is hitting commodities: front-month crude
briefly broke the $50 handle before the open, while copper is making three-year
lows and aluminum is at four-year lows.
- The major financial names are suffering. Just after the open Goldman briefly
traded briefly below its 1999 IPO price of $53/shr, Citibank is trading below
$5/shr down 20% and JP Morgan is down 10% after earlier hitting lows of -18%.
Before the open Saudi Prince Alwaleed made a vote of confidence in Citi's
recently announced restructuring plans, boosting his stake to 5% from about
4.3% prior. Alwaleed said he believes Citi is taking "all the right
steps," and that its banking model is a "long-term winner."
Overnight the Wall Street Journal took a closer look at Citi's move to
reclassify $80B of off balance sheet assets, noting that the move has unnerved
investors given that the holdings involved aren't garden-variety securities but
rather tricking things like CDOs.
- In other equity news, GE was down more than 10% in early trading after FT
Deutschland reported that the company was holding talks with sovereign wealth
funds in Singapore
and China about
a taking stakes. A GE spokesperson said that GE had no plans to raise
additional capital through Asian funds, flatly contradicting the story. GM and
Ford continue to loose value, with GM briefly trading below $2. GMAC filed its
application to become bank holding company submitted its application for TARP
funds today. Interesting there was also an IPO this morning, the first seen on
US markets since early August. Grand Canyon Education
(LOPE) opened for trading at $10/shr, below the initial pricing of $12.
- A raft of leading US retailers reported third-quarter results yesterday and
this morning that were on the whole not as bad as expected, although many are
cutting their view for the future. Yesterday after the close The Limited,
Gymboree and Hot Topic all beat earnings estimates; encouragingly only The
Limited cut any guidance, bringing its EPS view for FY08 into line with already
diminished analyst estimates. Bon-Ton's loss was smaller than expected,
although it expects a much bigger loss for the year than projected. Buckle,
Gamestop, Perry Ellis, the Children's Place and Wet Seal reported more or less in
line with analysts' estimates; only Gamestop cut guidance. PERY+35% and GYMB
+22% are making big gains, while all the rest expect GME and HOTT are making
respectable gains in early trading.
- The Swiss National Bank surprised currency traders with a big inter-meeting
move, cutting rates in half with a 100 bps ease. The SNB said the surprise move
was necessary as prices have fallen in both oil and raw materials at a rate
that could put inflation below 2% as early as at the end of this year. More
growth concerns are coming to the fore elsewhere in Europe,
Bundesbank noting a "marked slackening" of market dynamics in Q4. In
the US, the
unemployment claims data provided no relief, with the four-week moving average
of 506K at its highest level since 1982. Continuing Claims came in at their
highest level since 1982. EUR/USD tested back below the 1.25 level on chatter
the ECB could announce a rate change at an scheduled non-policy meeting, but
the pair moved back towards the 1.26 area as the morning wore on and
expectations of a intra-meeting cut waned. The ECB has hinted that it would
likely cut rates at its December policy meeting, but need the next series of staff
projections to confirm the move. The USD and JPY kept a firm tone as equity
markets hit multi-year lows just after the open. Commodity currencies will
remain vulnerable on the back of the lower energy and basic metal prices.
USD/CAD is testing the 1.28 level and AUD/USD is probing toward the 0.618 area.
- In fixed income, US Treasury yields continue their move lower on safe-haven
buying as global equity weakness continued overnight. The market saw a record
low on the 2YR yield, now seen trading below 1%. The 10YR yield declined below
the 3.15% to levels not seen in five years. Dealers are noting that the
2YR-10YR spread has narrowed further to +220 bps, which is around a
half-percent under its Oct peak. January fed fund futures are forecasting a 40%
chance of a 75bps rate cut by end of 2008.
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