- US equity indices are vacillating around the unchanged mark today as crude
plunges to four-year lows, the outlook grows darker for GMAC's bond swap and
big swings in major pairs ruffle currency trading. As quadruple witching
approaches, investors are shifting their focus from the Jan contract to the
more liquid Feb in oil. The ECB held a non-policy meeting today in which it
announced that it would reduce the deposit rate by 100 bps below the key rate,
while rumors circulated about Japanese government intervention to prop up the
yen. Initial jobless claims came in below consensus estimates at 554K and under
last week's revised 575K figure. Commentators were noting that a likely reason
for the improvement is that last week's figure was inflated by applicants who
delayed filing their claims during the Thanksgiving holiday. Nevertheless, the
four-week moving average increased slightly to 543K, the highest since December
1982. Meanwhile, the Philly Fed Index came in well below estimates. The ongoing
deluge of soft economic data is helping keep the pressure on Treasury yields.
Yields across the curve continue to make fresh all time lows with the long bond
approaching 2.5%, the 10-year nearing 2%, and even seeing buying in the 2-year
for the first time in several sessions sending that yield below 0.7%.
- Discover Financial Services released a mixed fourth-quarter report this
morning. The bottom line was $0.89, versus consensus estimates for $0.13, but
it looks like a loss for the firm after you back out the $1.10/shr benefit from
its $2.75B antitrust settlement deal with Visa and MasterCard from back in
October. Delinquency and net charge-off rates are surging, with DFS warning net
charge-offs could break through 6% in the first quarter of 2009. Shares of DFS
are surging, up nearly 15% in early trading. Other major financial stocks are
extending their post-rate cut rally, with MS+6% and WFC+3.3%. Cautious voices
are urging restraint, however, led by Goldman Sachs analyst Richard Ramsden,
who raised his estimates of US credit losses to $1.8T from $1.2T (on 10/03) and
insisted that the US is only half way through the credit crisis. RBC Captial
cut the US
banking sector to equal weight from overweight, while the Hedge Fund Research
Report said Q3 hedge fund liquidations rose 70% y/y.
- Other earnings reports have offered a mixed view of things. FedEx reported
solid results for is second quarter, in line with analysts' estimates on the
top and bottom lines. And although the shipping and logistics giant reaffirmed
its (recently slashed) earnings guidance for 2009, it refrained from providing
from the coming quarter due to "significant economic uncertainty" and
announced a variety of salary cuts. Carnival Cruises beat earnings estimates
but cut its 2009 forecast by a bit. Rite Aid reported twice the loss expected
and warned its 2009 earnings loss would be much larger than expected. Shares of
RAD have plunged 15% in early trading, with CVS+3% the apparent beneficiary.
Last night Nike reported in line with the Street, offering data that showed its
sales are still holding up in the face of the recession.
- But nearly everywhere else in the real economy, the outlook continues to
deteriorate. Mid-cap manufacturers Ingersoll-Rand and Pentair cut their
full-year and quarterly earnings outlooks, while Pentair announced more plant
closures. Semi name MEMC slashed its Q4 revenue guidance by 20% on flagging
demand. Alliant Energy guided its FY08 "at the low end" its prior range
and offered a 2009 view that was well below estimates. Pharmaceutical services
provider Convance cut its guidance due to FX issues. Atheros Communications cut
its Q4 earnings view in half. First Industrial Realty is sees a big loss in the
coming quarter and discontinued its European operations.
- In currencies, the price action remained swift and volatile during the New
York morning in a session rife with dramatic rumors
and technical-related factors, complemented by thin year-end conditions. The
USD was sharply lower during the European morning on chatter that China
purchased over â‚¬ 60B during the course of the week for its reserve purposes.
The EUR/USD tested the 1.4705 and then retreated. EUR/USD's pull back was
instigated by a quasi-official name reportedly selling the pair from the
200-day moving average, which comes in around 1.4715. This level corresponded
with the six-month channel resistance line in spot gold at $880/oz, where
rumored central bank was reported selling gold. Support in spot gold seen at
$845/oz. The USD was also aided by continued weakness in oil prices, which the
Jan Crude futures hit fresh four-year lows below the $38/barrel level. Other
commodities are under pressure as well with copper making a new four-year low
and the CRB down close to 2%.
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