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Forex Blog - U.S. Market Update
US Market Update
Dow +110 S&P +15 NASDAQ +27
- Equity trade is getting off to an enthusiastic start this week with the major US equity indices jumping nearly 2%. S&P commentary regarding General Electric and Dec existing home sales figures are helping investors ignore another round of corporate downers, including Caterpiller's disappointing results and layoffs as well as the collapse of the Dow/ROH deal. Although home prices continue to fall, the decline in existing home inventories to levels last seen in the summer of 2007 is lighting a fire under the homebuilders, with the XHB jumping 5%. Front-month crude is showing strength, gaining $1.75 to hold the $48 handle, while spot gold is benefiting from a rebound in the Euro. The upward momentum in government bond yields has carried over from last week as money flows away Bunds and Treasuries. The US 10-year is down half a point yielding 2.67%.
- Two mega mergers are all over the news this morning: Dow Chemical has told Rohm and Haas that it is unable to close on its $15B takeover of the company and Pfizer announced it would acquire a majority stake in Wyeth for $68B. With ROH/DOW deal, Dow said that recent developments have created â€śunacceptable uncertaintiesâ€ť in the funding for the deal, including the continuing financial crisis as well as the failure of Kuwait Petrochemicals to follow through on the K-Dow joint venture project in late December 2008. With the PFE/WYE tie-up, Pfizer confirmed widespread press speculation from last week and the weekend, noting it would buy Wyeth In a cash/stock deal valued at more than $50/share based upon last Thursday's close. Note that Crucell discontinued its own merger talks with Wyeth, although as late as yesterday both firms said that abandoning deal negotiations was not a foregone conclusion in the event of a PFE/WYE deal. Both Pfizer and Wyeth reported fourth-quarter results after the merger was announced. PFE beat earnings estimates, although it cut is dividend in half and said it would lay off 10% of its workforce and close five plants. WYE earnings were in line, while revenue came in below consensus estimates.
- Dow components Caterpillar and McDonald's reported fourth-quarter earnings before the bell. CAT-5% missed earnings estimates by a wide margin, although revenues were in line with the consensus. The firm's 2009 forecast fell well short of analysts' views and it said it would lay off 20% of its global workforce. CAT believes 2009 will be the weakest year for economic growth in the post-World War II period, but also sees the US as the first major economy to pull out of recession, sometime in second half of 2009. MCD is trading in line after beating on the bottom line by a slim margin and missing revenue estimates by a bit, reporting solid Q3 domestic and international same-store sales growth. Finally General Electric provided a boost to stock markets when S&P said Friday's poor earnings results would not affect its AAA ratings at this time. Elsewhere in earnings, FCX+12% surprised investors with a modest profit (ex items), versus expectations for a big loss. Healthcare names COV+6% and DGX+7% both beat earnings expectations.
- In other news, the media spent the weekend dissecting Bank of America's management soap opera in the wake of former Merrill CEO Thain's departure. The FT reported that BoA played a role in Merrill's decision to pay $4B in bonuses in December, while the NY Post speculated that BoA's CEO Ken Lewis is on his way out. Goldman Sachs downgraded Bank of America to a neutral overnight. And while financial names gain ground sharply this morning, the WSJ's "Heard on the Street" takes a look at the impact of rising unemployment on the US banking sector, noting that if the US unemployment rate rises toward 10% credit losses could balloon unpredictably because of high defaults among people with previously strong credit histories.
- In currency trading, the dollar/gold decoupling seen back on Friday has failed to gain traction this morning. Instead, traders are attributing broad euro strength to more hints from various ECB members that its February policy meeting would probably see a pause in the easing cycle. The ECB's Paramo noted that the ECB would need a very good reason to lower rates below 2%, but this rhetoric is nothing new, given ECB President Trichet's comments back on Jan 15. Some technical factors aided the euro as well: EUR/USD traded above its 200-hour moving average of 1.3057 during the New York morning, corresponding to its late December downward trend line. Dealers also noted that the EUR/GBP cross saw decent continental orders in early New York trading as it rebounded from session lows of 0.9335. Carry-related currency pairs were broadly higher, led by European components: EUR/JPY tested near 118 during the New York morning after touching 114 during Asia hours while USD/JPY was up 100 pips at 89.40. Commodity-related currencies were firmer, led by strength in CAD.
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