- US equity indices extended yesterday's late sell off in the pre-market this
morning, with all three major indices opening down around 1.5% a piece. A heavy
load of news is buffeting markets, with China's
lack of confirmation of a fresh stimulus package (expectations of more Chinese
stimulus jolted markets upward yesterday), marginal same-store sales numbers,
employment data, ratings warnings on BoA and Wells Fargo from overnight, and
big rate cuts in Europe are presenting a very
complicated picture this morning. Note that the weekly initial and continuing
employment claims were a hair better than expected, yet revisions were slightly
- Shares of GE have steadily declined over the course of 2009, a trend that has
greatly accelerated in the wake of the company's dividend cut. Rumors and
speculation that the ratings agencies will cut GE's coveted AAA rating have
been rife since late February; yesterday PIMCO's Bill Gross went as far as to
say that the big decline in GE shares show the market has already priced in a
downgrade, noting that any ratings cut would force certain institutional
holders to limit their exposure to the company. Yesterday fresh rumors that GE
needs to raise capital to shore up GE Capital made the rounds. This was
promptly refuted by the company itself, yet overnight the WSJ reported that
investors fear the company could face large losses on GE Capital's $637B
balance sheet, particularly on assets such as commercial real estate and loans
in Eastern Europe. This morning GE's CFO gave a long,
candid interview on CNBC, insisting that the speculation about GE Capital is
overdone and affirming rather adamantly that the unit needs no additional
capital. Shares of GE were up 5% in early trading.
- Ford launched a significant debt restructuring plan yesterday afternoon, in
which it hopes to retire more than $10B of outstanding debt, including
debt-to-equity swaps. Moody's responded by lowering Ford's probability of
default rating and also cutting the rating on its secured revolving credit
facility. Fitch said the offers do not affect Ford's issuer default rating at
CCC. GM officially disclosed in its annual report filing that its auditor sees
significant doubt regarding the company's ability to continue as a going
concern. GM also disclosed it expects to receive additional loans of up to
$7.7B or more from the DOE, as had also been discussed in prior months. GM
responded in the mid morning by stating the auditor's claims were 'not a big
deal'. Bondholders at GM are due to speak with the Obama administration later
totday. Shares of Ford lost up to 5% in the early going, before popping back into
the black. GM is down 15%.
- Moody's put various ratings for Bank of America and Wells Fargo on review for
possible downgrade yesterday afternoon. For WFC-12%, Moody's noted that the
pressures on the bank's capital position make a multi-notch downgrade likely
for its financial strength rating. For BAC-6%, Moody's said the review was
prompted by concern that capital ratios could deteriorate in 2009 from their
already low levels due to the need to take high loan loss provisions and absorb
additional charges for its capital market exposure. Note that speculation is
circulating that Citi will be removed from the Dow Jones Industrial average.
- Wal-Mart is doing quite well this morning, with shares up 4% in the wake of
February same-store sales and a dividend hike. BJ's just managed to keep
same-store sales positive, while Costco and Target reported declines.
Department store names disclosed yet another month of steep y/y monthly sales
declines, with high-end names Saks and Nordstrom falling 15% and 26%,
respectively. Apparel sales were dismal as well, although youth-oriented names
Aeropostale and Hot Topic showed even bigger y/y sales increases than in
January. By far the biggest same-store sales decline (-30%), was at
Abercrombie; shares of ANF are down more than 12%.
- In currencies, three events are driving the price action in the European and US
sessions, including China
and the two European rate decisions. The greenback was initially bid up
following Chinese Premier Wen's opening address to a nine-day legislative
conference. Wen failed to disclose any additional stimulus spending, although
he reaffirmed that China
can hit its ambitious 2009 GDP target at 8%. Across the pond, the Bank of
England continued its easing cycle, cutting its key rate to its lowest level
ever at 0.50%. The BoE also took the unprecedented step of printing money to
purchase Â£75B in assets, Including Gilts. European fixed-income futures surged
on the news, led by June Gilts, probing the 123 handle after opening around
118.85. The UK
yield curve flattened significantly in the aftermath of the quantitative easing
- The ECB cut rates by 50bps to 1.50% as expected but Trichet noted that the
decision was reached by consensus and not unanimous. Currency dealers noted
that perhaps there was dissent on both sides of the 50bps move. The ECB hinted
it still has to room lower its key interest rates, depending on future ECB staff
projections lowering GDP and inflation projections for 2009 and 2010. The ECB staff
now forecasts 2009 GDP growth in a range of -3.2% to -2.2%, compared to their
prior view of -1.0% to 0.0%, with 2010 revised to -0.7% to +0.7% from a 0.5% to
1.5% prior. Staff revised 2009 inflation lower by a full percentage point, to
0.1 to 0.7% and 2010 inflation to a range of +0.6% to +1.4%. These inflation
expectations are well below the 2.0% mandated ceiling for the ECB.
- The USD came off its best level during the mid-NY morning after US Q4
delinquencies surged to its highest level on record to 7.88% from 6.99% prior.
EUR/USD failed to take out the low made earlier this week. Interbank FX
liquidity was impaired due to some issues with its electronic pricing
mechanism. USD/JPY encountered some turbulence with spreads between banks
widening to over 30 pips from its customary 1 to 2 pips as a result of the
technical issue and saw USD/JPY pair slip to 98.25 from 99.20 as a result. The
Japanese exporters continue to offer USD on approach of the 100 level during
the European morning.
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