- Equity markets opened lower and are attempting to stabilize in the wake of
more discouraging jobs data. Before the open the initial US
jobless claims reading hit its highest level since 1982, also registering its
largest weekly increase in three years. The four-week moving average for
initial claims came in at 540.5K, its highest level in seven years. And in
Washington Congress is struggling toward compromise over an automaker bailout
bill. The House passed its version of the bill last night after Republican
representatives floated their own alternative version and Republican senators
vowed to filibuster the bill out of existence. This morning Senate Majority
Leader Reid said the bill meets the demands of the White House, noting that he
hopes to prevail over a filibuster on Friday and asserting that he is open to
Republican alternatives - shares in GM and Ford remain down 4-7%. Treasury
prices are bid up once again as the flight to safety notion continues to hold
prevalence. The 2-year yield drifted back toward 0.8% while the 10-year stands
at 2.64% ahead of this afternoons auction results.
- The upward momentum in a variety of commodities has found some traction. Feb
gold has been trading higher by another $20 throughout much of the session back
to $825, helped by weakness in the US Dollar. Oil has been rallying for the
second straight session as well, this after the OPEC president called for
‚Äúsevere‚ÄĚ production cuts at their upcoming meeting. Prices also received a
boost in the overnight session after output data from Saudi
Arabia indicated they were aggressively
complying with the November output reduction announcement. Jan crude has gained
more than $3, working back above $47 while reformulated gasoline has gained
close to 10%.
- The clock ran out on the biggest leveraged buyout in history today, leaving
the $27.8B takeout of Canadian telecom BCE by a group of private investors
officially dead on arrival. This development was more or less a foregone
conclusion, as two weeks ago auditor KPMG stated that the deal would not likely
meet solvency requirements by the scheduled closing date. BCE plans to file a
lawsuit seeking the $1.2B breakup fee it is owed in the wake of the deal
- At its analyst meeting this morning, Dow component Proctor & Gamble
warned that organic sales would be below expectations for the quarter, but
reaffirmed its Q2 and 2009 guidance, noting that the company is "recession
resistant" but not "recession proof." PG also noted that it is
halting all investments in pharmaceuticals and may divest its healthcare
brands. Eli Lilly offered its outlook for 2009, guiding earnings of 4.35-4.55,
ex charges for the ImClone acquisition, a figure a bit above consensus estimates.
LLY's CFO noted that it expects to launch one new drug annually from 2009
onwards. Boeing has pushed back the first flight and delivery of the 787
Dreamliner once again. Now first flight is scheduled for Q2 of 2009 (Q4 of 2008
prior) and first delivery for Q1 of 2010 (Q3 of 2009 prior), reflecting the
impact of the recent machinists' strike and a parts replacement slipup.
- More small- and mid-cap firms are cutting guidance and announcing job cuts.
Tool manufacturer Stanley Works reduced its outlook for the year and cut 2,000
jobs (11% of workforce), noting that decline in its construction and industrial
segments has been worse than in previous recessions. Engine maker Cummins cut
its full-year revenue guidance by 25% and said it would eliminate 500 jobs.
Semiconductor firms PMC-Sierra, Diodes and Volterra all cut guidance for the
quarter due to falling sales.
- In currencies the greenback continues to face pressure against the major
pairs following the ugly US
claims data. Both technical and fundamental factors are stoking the more than
250 pip EUR/USD surge toward 1.33. The fun began late on Wednesday, after the
ECB's Stark noted that the bank did not have a lot of room left for maneuver
after last week's rate cut, helping EUR/USD clear the rumored stops above
1.3050/70 level. Comments from the Saudi Oil Minister that Saudi
Arabia was near compliance helped oil bounce
out of negative territory to probe toward the neighborhood of $46, refocusing
the inverse USD/commodity price relationship. Some dealers noted that there are
doubts whether the touted pent-up demand for the dollar would materialize
around the end of the year. The US
October trade data showed that imports and exports both fell for the third
consecutive month, further deepening global recession fears. Dealers are also
highlighting the fact that EUR/USD is back above the 55 EMA, a technical level
the pair failed to break in September. USD/JPY is approaching the key 90.00
level where option barriers are said to lurk. Dealers noting that a sustain
breach of that level could prompt either a single central bank to intervene or even
a coordinated G7 effort.
- The EUR/GBP cross is also generating a lot of attention, after Germany
ahead of an EU summit for rushing into debt to bail out industries and pump up
growth. Dealer chatter is centering on an interview with Newsweek magazine, in
which German Finance Minister Steinbrueck urged governments to pause before
pledging to spend billions of dollars to try to push their economies out of
trouble. The GBP is softer against other crosses such as GBP/JPY, GBP/CHF and
- Commodity-related currencies are broadly firmer on the back of higher energy
and metal prices. USD/CAD testing below the 1.23 level while AUD/USD probes the
0.67 neighborhood. The Bank of Canada stated that a strong USD could prevent a
proper solution to imbalances. The bank also commented that the downside risks
to global economy increased significantly.
- In emerging market currencies, South African Central Bank cut its interest
rate by 50bps to 11.50%, as expected. USD/ZAR is trading around 10.03, which
had the ZAR 9 handle firmer from its opening level of 10.11 in Asia.
- The session saw a steepening in European curve. The spread between the german
2-year and 10-year widened to 103 bps from 92 earlier; The UK 2-year/10-year
spread at 183bps. The Mar Bund futures contract at 122.16, down 16 ticks while
the mar Gikt futures lower by 28 tick at 118.15.
- European equity bourses were mixed but generally in the upper quarter portion
of today's trading range. Euro Stoxx 50 -0.15 at 2,492; FTSE 100 Index +0.9% at
4,403; Cac 30 Index -0.35 at 3,312 and DAX Index -0.6% at 4,777.
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