- Fear over capital deficits at major banks and anxiety over the dismal
December advanced retail sales data forced US equity indices down around 1.5%
before the open. Indices lost another two percentage points in the first hour
of trade as investors continue to shun risk. Speculation that Citigroup is
selling assets and breaking up the business in order to shore up a decimated
capital base has really spooked the markets. Those worries were only exacerbated
by a steady stream of more bad news from several major European financial
institutions. The Commerce Department reported that retail sales fell twice as
much as expected in December, deepening pessimism over the condition of US
consumers. Before the open the Philadelphia Fed's Plosser said he believes US
growth will be well below 2% in 2009 and that the economy will not begin
recovery until the second half of the year. Front-month crude is down more than
a buck around $36 after weekly DOE inventory data showed large builds in both
distillate and gasoline stockpiles. Treasury prices have benefited from a
flight to safety. The 10-year yield has fallen below 2.2% while the long bond
yield is testing 2.9%.
- Bad news at European banks and more reflection over the motivations behind
the Citigroup/Morgan Stanley brokerage deal are hitting financial names in
early trading, with the XLF off 5% in mid morning trade. Deutsche Bank shocked
investors by warning that it would announce a very substantial Q4 net loss of
â‚¬4.80B (estimates were for a â‚¬330Me loss). In addition, a Morgan Stanley
analyst said that UK
bank HSBC needs to raise an additional $30B in capital due to anticipated drops
in profit in 2009. The WSJ's Heard on the Street reported that Royal Bank of Scotland's
sale of its Bank of China stake may only be the beginning of big divestitures,
with its stakes in Citizens Bank and ABN Amro potentially on the list. The
article noted that Citi may be forced into international asset sales as well;
press reports over the last 12 hours have noted that Citi says it has no
intention of selling its Japanese private banking operations or its stake in Mexico's
Banamex. Investors have not been reassured and are dumping shares of Citi, with
the name down more than 14% in early trading.
- In other equity news, health care name Hill-Rom reported preliminary Q1
revenue figures that were a bit below analysts' estimates, also noting that it
would cut 6.6% of its workforce as part of a restructuring plan. Investors had
initially dumped HRC on the news, sending shares down 8% or so, but HRC was
back in positive territory mid morning. Under Armour also annouced preliminary
results, warning that its Q4 earnings would less than half the expected amount
and revenue would also be below expectations. UA also cut its 2008 forecast,
due to falling sales volumes; shares of US are down 15%. Luxury retailer
Tiffany & Company reported holiday same-store sales of -3% y/y and cut its
2008 guidance, sending shares of TIF down 5%. Solar stocks continue to loose
ground on falling energy prices and the recession, with global solar ETF TAN
down more than 5%.
- Currency markets are reacting to a range of economic and corporate stores.
The euro failed to recover in the New York morning following misrepresented
comments attributed to the Irish PM. Bearish sentiment for the euro gained
momentum following S&P's sovereign downgrade of Greece's debt, sending EUR
lower against its major pairs and below the 1.3200 level against the USD, where
"quasi-official" names had been reportedly bidding for euros earlier.
Bearish EUR sentiment has continued to build ahead of tomorrow's ECB rate
decision. Dealers believe the 1.3070 level has become a key pivot point over
the last quarter. The carry-related pairs have succumbed to risk aversion, with
fears of a global recession continuing to dominate the price action. US retail
sales fell for the sixth consecutive month, extended the longest string of
declines since the series was created back in 1992. In yen trade, the EUR/JPY
cross is moving back toward its key support ahead of the 116.30 level while
USD/JPY is headed toward its December pivot point of 88.20. Commodity related
currencies pairs were broadly lower as both energy and metal prices slumped,
while Russia's MICEX exchange was temporarily suspended after hitting limit
down and the Russian Central Bank continued its gradual devaluation process for
the third time in four days.
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