- US indices are holding up relatively well, vacillating in and out of positive
territory in early trade. On the plus side are the deep European rate cuts,
ECB's Trichet hinting at a new plan to buy up bad assets and the
lower-than-expected initial jobless claims reading, though it did remain above
500K. These factors seem to be outweighing the dreadful November same-store
sales numbers, negative corporate news (more layoffs, lowered guidance, and production
cuts) and worse-than-expected October factory orders. Executives from the
Detroit three drove to Washington to begin testimony this morning after reports
overnight indicate that GM or Chrysler might enter bankruptcy in order to
finagle their way into a government buyout. Meanwhile, the administration
continues to procrastinate over whether or not it will draw the second tranche
of TARP funding. Treasury markets are actually seeing some selling at the short
end of the curve leading to continued compression. The two-year yield is back
above 0.9% while the long bond continues to trend towards 3%.
- Dow components AT&T and Du Pont both announced staff and CAPEX cuts
before the open, with Du Pont noting it would report a substantial $500M Q4
loss. AT&T is laying off 12,000 workers (4% of staff) and Du Pont is
cutting 2,500 jobs (4% of staff). Du Pont said it expects a global recession to
continue well into 2009, noting that it is seeing a global decline in
construction and auto markets. Viacom said it would cut 850 jobs (about 7% of
workforce) and suspend senior-level management salary increases for 2009,
noting that it sees a $0.42-0.48 per diluted share charge in Q4. Nokia lowered
its Q4 and 2009 outlook for mobile device volumes. Steel Dynamics said it would
not meet its 2008 shipment goals of 6M tonnes noting that they would be closer
to 2007 totals of 5.6M tones. AMD said its revenue would be 25% lower than Q3
levles, while mid-cap tech firms Avnet and Amphenol cut their views for the
coming quarters. Office hardware manufacturer Steelcase cuts its Q3 forecast
and cut 300 manufacturing positions.
- In other equity news, same-store sales came in highly negative, with many
retailers reporting double-digit sales declines in November. The standout report
came from Costco, which reported its second consecutive monthly sales decline.
The only firms keeping things in positive territory were discounters Walmart
and BJ's, and several specialty apparel retailers such as APP and BKE. Notably
Abercrombie's sales declined 28%, more than expected. Toll Brothers surprised
investors with a respectable Q4 profit, versus consensus expectations of
another quarter of losses. Sanderson Farms reported a quarterly loss that was
twice the expected amount, noting that export customers have experienced
difficulty obtaining credit to buy its products. The credit crunch has crushed
two more merger deals. i2 Technologies terminated its merger agreement with JDA
Software Group, while NWJ Apartment Holdings told Wilshire Enterprises that in
the current economic and lending environment, it was not able to secure the
financing required to close their merger deal.
- In currencies, the greenback retreated in the aftermath of this morning's
European interest rate decisions. The BoE cut as expected by 100bps to 2.0%,
its lowest level since 1951, while the ECB cut by the largest amount in its
10-year history by 75bps to 2.50%, citing the waning inflationary outlook. The
aggressive ECB decision came on the heels of ECB staff projections forecasting
2009 GDP growth between -1.0% and 0% (compared to a prior range of 0.6%-1.8%).
The ECB staff also saw 2009 CPI around 1.1- 1.7%, down from their prior view of
2.3- 2.9%. Despite the large than expected rate cut, traders are really
focusing on the Q&A segment of the ECB's press conference, during which ECB
President Jean-Claude Trichet said it might be possible for the ECB to make
asset purchases outright. Trichet went on to reiterate that he remains
cautious, warning markets not to confuse deflation with disinflation. He added
that he does not believe Europe is facing deflation. Trichet also noted that
today's decision was reached by consensus.
- The European currencies recovered from session lows following the early
Swedish Central Bank rate cut, while the BoE cut brought a sense of relief to
GBP-related pairs given that markets were bracing for the lowest UK interest
rates since the BoE was founded in 1694. The GBP/USD tested 6 Â½ year lows
around at 1.4470 before rebounding to 1.4670, the GBP/EUR hit fresh all-time
highs of 0.8694 and GBP/JPY made fresh 13-year lows at 134.07 prior to their
respective retracements. European bourses managed to recover from opening level
losses and hovered in their mid-session range and onto minor losses into the
last hour of trading. Euro Stoxx 50 -0.3% at 2,363; FTSE 100 Index -0.3% at
4,157; CAC 40 Index -0.4% 3,152 and DAX Index +0.1% at 4,570. European yield
curve flattened after the BOE and ECB rate decisions. March Bunds at 123.87,
down 6 ticks and March Gilts +16 ticks at 119.87.
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