- Pre-market equity trading picked up where it left off on Friday, with US
indices rallying, energized by the government's lifeline for Citigroup.
European indices have surged close to 10% on the day as well. Government yield
curves are flatter both here and overseas with yields moving higher. Money is
coming out of government bond markets as investors seem a bit more willing to
take on risk. The US
10YR yield has moved back above 3.3% while the 2YR approaches 1.15% ahead of
this afternoon's auction results. With little economic data or other news to
get in the way of the rally, traders scooping up a plethora of the beaten down
financials, with Citi recouping nearly all of the ground it lost last week
before the bell this morning. But in the background are disquieting
developments, with the overnight dollar LIBOR fixings rising slightly and the
Baltic Dry Bulk index extending its turn to the downside. Front-month crude has
spiked out of the forties, trading up more than $2.25 around $52, while gold is
- Investors seem encouraged by the government bailout of Citigroup, details of
which are coating front pages and news reports this morning; the rest of the
financial sector is clearly benefiting from the government's move. Morgan
Stanley is up more than 25%, Goldman, Wells Fargo, Bank of America and JP
Morgan are up 12-20%. Not everyone is overjoyed with the recent developments,
including Oppenheimer's Meredith Whitney, who called Citi "a speculative
investment" and predicted that the shares would be trading under $5/shr.
Whitney believes the government's latest plan to stabilize the financials may
work "for the near term," but remains cautious on future
developments. Citigroup's CFO reiterated on CNBC that the bank remains well
capitalized, although he also noted that one can "never say never"
regarding the need for further capital injections. According to Whitney
"Citigroup is in such a mess, Stephen Hawking could not turn this company
around." Overnight the New York Times looked at the potential impacts of
the "Big Three" automakers on the financial sector, noting that the
automakers owe their bankers and bondholders more than $100B and Wall Street is
starting to wonder how much of that will be paid back.
- In other equity news, consumer staples giant Campbell Soup offered a rich,
chunky bowl of quarterly results, more or less meeting analysts' estimates on
the top and bottom lines and reiterating EPS growth of 5-7% for FY09. Xerox
offered its first guidance for 2009, guiding FY09 EPS $1.00-1.25 versus
consensus estimates of $1.16, reassuring investors that it sees no need to
access capital markets in the near future. Xerox's CFO said that the company
has not seen any customers canceling contracts. On the M&A front,
Alpharma's board has given up the fight and capitulated to King Pharma,
accepting King's $37/shr cash acquisition offer after the latter took its offer
directly to shareholders in a hostile tender back in September.
- In currencies, the typical inverse relationship between the equity markets
and the USD- and JPY-related pairs remained in place this morning. EUR/USD is
probing the upper end of its one-month consolidation range of 1.24-1.28, with
dealers noting that the 30-day moving average currently stands at 1.2831.
Dealers are also citing InBev's â‚¬6B euro issuance as aiding euro demand in the
session. USD/JPY moved higher to test the 96.00 level as the yen weakened from
is best level of 94.95 seen during the European morning. Meanwhile the EUR/JPY
cross is up over 100 pips at 122.40 area. Commodity-related currency pairs
firmer on the back of higher gold and oil prices. USD/CAD is 1.2570 after
opening at 1.2674 in Asia and AUD/USD up 50 pips at
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