- US equity markets have managed to post some gains ahead of this afternoon's
FOMC meeting, but volume remains lackluster. The Fed is expected to cut by at
least 50 basis points and that continues to be reflected in the fed fund
futures market with 75 not out of the question. Hawkish OPEC rhetoric continued
this morning, with a consensus seeming to emerge that the organization will
announce cuts of around 1.5-2.0M bpd at tomorrow's meeting, with strong support
Traders pushed front-month crude up more than $1.50 above $46 in early trading,
but the contract has backed off into negative territory heading towards
mid-day. The morning's housing starts and building permits data showed further
demand destruction ripping through housing, although the data has been positive
for homebuilders, with the XHB gaining as much as 4%. Better buying continues
to be seen at the long end of the US
curve pushing the long bond yield safely below 3%.
- Goldman Sachs announced is first quarterly loss ever as a publicly traded
company this morning, missing analysts already dismal earnings estimates by
around 20% and shocking investors with a very large negative revenue figure of
-$1.58B. But the news doesn't seem to be hurting the stock, with shares of GS
making fresh highs +6%. The firm's assets under management fell by an
astonishing $90B, more than 10% of the total; asset management revenues fell
19% y/y. Goldman's CFO put his best spin on things on the conference call,
noting that Goldman remains â€ścautiousâ€ť on its near-term outlook and expects to
boost its US
bank deposits to $50-100B within a year. Moody's cut Goldman's senior debt
rating from high to medium grade, impacting $175B of the firm's debt, thanks to
issues involved in the firm's conversion to a bank holding company. Elsewhere
in the financials, Bank of America is in the red after being resumed with an
underperform rating at Friedman Billings. According to FBR's Paul Miller, the
bank's stock price could fall to as low as $9/shr.
- Best Buy is having an excellent morning in spite of the toxic consumer
environment and the slowing economy, with shares up around 15% in early
trading. The electronics retailer reported quarterly earnings and revenue ahead
of consensus estimates this morning and reaffirmed its very broad 2009 EPS
guidance range. BBY's CEO made it clear that the firm only expects things to
get worse, but emphasized that Best Buy is making all the right moves to
prepare for the storm, including CAPEX spending cuts of up to 50% next year. In
other equity news, auto parts manufacturer Johnson Controls withdrew its 2009
guidance due to the turmoil in the global auto industry, cut 2009 production
estimates and cut its CAPEX investments for 2009. Mexican cement giant CEMEX
guided quarterly profit slightly lower, noting that US cement volumes were down
about 25% y/y, with ready-mix and aggregate volumes down even more. The
chairman of Berkshire Hathaway's MidAmerican said the firm would not launch a
counter offer for CEG's nuclear unit, seeming to end its $26.50/shr cash merger
offer for CEG, leaving French energy giant EDF the only bidder for the nuclear
business. If CEG terminates the agreement with MidAmerican, Berkshire
stands to receive $593M in cash, a 9.9% stake in CEG and $1B of senior notes,
which pay interest equal to 14%.
- Analyst actions are really moving selected equities, with BIDU+8% after
Goldman raised the name to a buy with a price target of $145. Merrill raised
potash names POT+8%, MOS+11% and TRA+13% to buy. Merrill made positive comments
on fertilizers industry before the open. AAPL is under water again this morning
after another in a line of analysts cut the name. AAPL shares were cut to
outperform from buy at Calyon and also cut to outperform from buy at a boutique
- The greenback is maintaining a softer tone going into the Fed interest rate
announcement due later today. Some technical factors continue to stymie the
downside momentum in the dollar for the time being, with dealers noting the
1.3760 area as a 38.2% retracement level of the EUR's all-time highs made back
in July to the 1.2330 Oct 27 low. Overall dealers are really zooming in on the
concept of quantitative easing and its implications for currencies. If the Fed
pursues quantitative easing, dealers are assuming it will be a USD because it
tends to depress bond yields. Japan
is the only historic example we have on hand, although it remains unimaginable
that the US
economy could be brought down to that level.
- European officials aired opposing views at the central bank and political
levels. A German deputy economy minister said Germany's
economy could contract by up to 3% in 2009 if the slump continues, while German
Economy Minister Gloss denied that the ministry sees such an extreme forecast.
The ECB's Trichet stated that there were limits to rate cuts and that rates
can't be allowed to fall too low, while the ECB's Bonello noted that economic
activity has weakened since Dec 4th and technically there is more room to cut
rates, including quantitative easing.
- Hawkish OPEC production cut chatter from Iran,
other delegates helped to keep crude futures in the upper quarter portion of
the session trading range with up to 2M BPD cuts sought. Saudi Oil Min only
expressed that the results of Wednesday's OPEC meeting would be net benefit for
all and commented that 2M BPD in cuts could be expected. The commodity related
currencies of CAD, AUD and NZD were firmer thanks to oil. USD/CAD trades at
1.2285, with CAD stronger by 65 pips from its opening levels encountered in Asia.
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