- The strength seen in equity markets post Fed announcement has dissipated as
companies continue to lower their outlook for profits and production heading
into 2009. Morgan Stanley reported expectedly lousy results while names like
Honda Motors, Xilinx, Newell and Schnitzer Steel are just the latest to cut
guidance. Treasury yields continue to make new historic lows across the curve
as the momentum from yesterday's FOMC statement builds. Along those lines the
greenback continues to take a pounding which has pushed the euro above 1.43 and
the USD/JPY below 88 for fresh 13-year lows. Feb gold traded at two-month highs
above $880 after the spot price broke above its 200-day moving average around
- Oil trade has been front and center this morning, with weekly inventory data
pushing prices to new lows before OPEC confirmed a January cut of more than 2M
barrels a day. The OPEC announcement injected some volatility into the market
as it was announced as a cut of 4.2M bpd from September. Initially prices moved
higher but by the time members confirmed the new cuts amounted to 2.2M bpd
prices were moving lower once again. Jan crude is now making new session lows
approaching $40 after the OPEC president announced non-OPEC nations have not
agreed to any complimentary production cuts.
- Morgan Stanley reported its first loss since last December, at -$2.24 versus
expectations for a $0.34 loss, but the stock has managed to move into the
green. Revenue was less than half the expected figure. Assets under management
fell 28% y/y, while ROE was not disclosed at all in the press release. Morgan
said it has cut leverage from 32.6x to 11.4x and confirmed it is launching a
retail banking group, as expected. Morgan's CFO said that construction of a
retail bank business will be fueled by the brokerage network, confirming it
holds $42B in deposits and seeks to expand deposits to 50% of funding needs
within three years. Multiple analysts cut their earnings estimates on Goldman
Sachs overnight, including Oppenheimer's Meredith Whitney, Morgan Stanley, and
Sanford Bernstein. The Wall Street Journal reported that government regulators
are increasing their oversight of Citi's strategy, including advising executive
against making certain acquisitions. Last night CIT Group launched a sizable
$250M common stock offering, amounting to 18.9% of the firm's market cap, as
the final installment of its efforts to build enough capital to become a bank
- In other equity news, Big Food is doing well despite the slowdown, with both
General Mills and ConAgra Foods beating consensus estimates handily. The CEO of
General Mills did warn that the firm does see slower sales in the second half
of 2009. The ADRs of Satyam Computer have jumped more than a third after the
Indian IT giant canceled its acquisition of Maytas Infra LTD and Maytas Infra,
"in deference to the views expressed by many investors.â€ť Apple is down
around 7% after a pre-market downgrade as well as its announcement that CEO
Steve Jobs would not give the keynote speech at next month's MacWorld
conference. Newell Rubbermaid slashed its guidance by more than two thirds for
all the usual reasons, noting that it is positioning the company for a
prolonged downturn. NWL is down more than 20%
- In currencies, several themes emerged during the session, but year-end
liquidity issues continue to be the overall driver of the price action. Dealers
are noting that thin liquidity are prevailing as the end of the year approaches.
The greenback has sustained its soft tone against most major pairs, with the
dollar taking the brunt of the Fed's policy move yesterday. Dealers are noting
that markets tend to punish the currencies of aggressive proactive central
banks and reward those of the â€śstodgy, disciplinedâ€ť variety (e.g. the ECB). In
this way markets seem to be using the thin trading conditions to test the
resolve of central bankers.
- The German Government advisors (aka the wisemen) called on the ECB to cut
rates "significantly,â€ť insisting that the ECB intervene in currency
markets if EUR/USD hits the $1.50 level again. The wisemen called the euro's
appreciation a problem for the German economy. Nonetheless EUR/USD probed above
its 100-week moving average of 1.4250 during the New York
morning and proceeded to trade above the 1.44 handle, up over 300 pips from its
opening levels in Asia and 1000 pips for the week thus
far. The euro's firm tone was not only limited to the dollar. EUR/GBP again
tested fresh all-time highs near the 0.93 area, while EUR/JPY firmed by more
than 80 pips to probe toward the neighborhood of 126.00.
- In other currency news, the Swiss Franc (CHF) was broadly firmer in the
session, with GBP/CHF testing below the 1.6730 level for multi-decade lows in
this pair, while USD/CHF tested the 1.0750 area before snapping back towards
1.0850 ahead of the European close. USD/JPY hit fresh 13-year lows at 87.10.
The market had been wary of intervention, though with nothing either verbally
or physically has seen from the Japan's
Ministry of Finance. The Russian Ruble exhibited continued weakness, with
dealers suggesting that the current price movements are showing the RUB
undergoing the biggest devaluation of the seven or so seen in the last month
and a half. The usual pattern had been for a 1%, or roughly 30 Kopeck,
depreciation within the basket trading band, but dealers are noting that
today's RUB move appears to be a 40 Kopeck move.
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