- US indices opened higher for the third day in a row after the Fed announced
yet another massive plan to support the financial industry, this time focusing
on the consumer. But regardless the Nasdaq, DJIA and S&P500 all traded into
the red before . More negative
housing data and an unexpectedly weak Richmond Fed reading helped drag down
indices, with the S&P/Case Shiller Composite index showing home prices
falling 17.4% over the year ago figure. Adding to the negative sentiment the
FDIC stated that its "troubled bank list" grew to 171 institutions in
Q3, versus 117 in Q2, complemented by an S&P report that noted credit
troubles are still hindering US banks. Treasury yields have moved lower as the
newest funding facility will result in the government stepping in and buying
GSE and MBS debt. Buyers have been particularly aggressive at the longer end of
the curve. Front-month crude is headed back towards $50, down more than $3
despite French President Sarkozy's pledge to announce a massive stimulus
package and Russia's
acknowledgment that they intend to cooperate with OPEC going forward.
- The Fed's latest stimulus program, christened
the Term Asset-Backed Securities Loan Facility (TALF), is designed to pump
resources into consumer credit market, especially the still-frozen mortgage
market. The total $800B in funding is broken into three main components: it
will buy up to $500B in mortgage-backed securities via asset managers, puchase
$100B in Freddie and Fannie obligations through a series of competitive
auctions and offer $200B in direct loans for small businesses. In addition, the
Treasury is allocating $20B from remaining $40B left in first tranche of the
TARP program to consumer lending. The purchases of both GSE obligations and MBS
are expected to take place over several quarters, with the TALF program
authorized through Dec 31, 2009.
- In a press conference this morning, Treasury Secretary Paulson noted that the
$200B allocated under TARP for buying up ABS is only a starting point, implying
that a bigger purchase may yet arise. He also warned that no decision has been
made on an extending the TARP to insurance companies, although he did point out
that insurers with bank holding status are applying for the program. The Hartford
was up as much as 20% and Prudential shot up 10% just after the event, before
trading off mid morning. Goldman, Morgan Stanley, Citi and JP Morgan were up as
much as 8-12% in early trading, before losing considerable ground mid morning.
- BHP, the world's largest mining company, abandoned its year-long pursuit of
Rio Tinto this morning, blaming the rout in commodities prices and the
credit-market squeeze for derailing the biggest hostile takeover. The CEO said
the combination of $40B in new debt and regulatory hurdles made the $66B bid
too risky at a time when the slowing world economy reduced demand for raw
materials. RTP is down about 30% while BHP is up just shy of 20% on the day.
Google is up more than 8% after Barclays and Merrill were out defending the
name, noting the sell-off of the last several weeks has been overdone. In a
rare move for the company, Google announced last night that it would cut 10K
contract workers, including temporary hires and outside service providers.
- Earnings for the morning are reminding investors of the challenges faced by
the economy. Homebuilder DR Horton surprised investors with yet another
larger-than-expected loss, while revenue also fell short of analysts'
expectations. The outlook for the firm is only growing grimmer, with quarterly
metrics seeming to indicated no bottom in sight for the firm's or the nation's
housing problems, with the order cancellation rate climbing and new sales
orders falling q/q. High-end retailer Talbots continues to suffer from the
slowdown, announcing a consecutive losses and same-store sales that declined
more than 13% in the quarter, and withdrawing guidance for 2008. Jewelry giant
Zale Corp also reported a bigger loss than expected and missed revenue targets,
noting that it does not believe its previous earnings guidance should be relied
upon. IT equipment and services provider Tech Data missed on both the top and
bottom lines. And while American Eagle Outfitters reported solid earnings for
the quarter, it noted that gross margins fell dramatically in the quarter and
sales in the first two weeks of November were already down 17%. But economic
slowdown is also seeing some winners: Spam manufacturer Hormel came in a bit
ahead of estimates and raised its dividend slightly, while discounter Dollar
Tree beat earnings estimates and raised its guidance for the year.
- The greenback was broadly softer throughout the New
York morning thanks to the latest round of economic
stimulation measures in the US
as well as a new French package. French President Sarkozy said he would
announce a â€śmassive stimulus planâ€ť within a couple of days. Downside USD
momentum also came from the US personal consumption data, which came in below
expectations for Q3, with EUR/USD hitting three-week highs of 1.3080 in the
aftermath of the report. European central bankers are offering a lot of
commentary on monetary policy, with the ECB's Bini Smaghi warning that sharp
rate cuts could "contribute, rather than obviate, worsening market sentimentâ€ť
and the ECB's Nowotny said it makes sense to be "rather cautious and
reserve some of firepower.â€ť Other European figures offered counterpoint to
these views, with the EU's Juncker noting that the ECB has room for further
rate cuts and the Bank of Italy warning that the financial crisis could turn
into an extended recession. The commodity currencies were firmer despite lower
oil prices and a Baltic Dry Bulk Index that had its fifth straight decline,
hitting its lowest reading since Feb 1999. USD/CAD is back below the 1.22
handle after Canadian retail sales surged 1.1% in September, above
expectations. Dealers say position squaring is dominating the session, noting
that the risk of an extended retrenchment rally hangs over the rest of the
holiday trading week.
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