- Fallout from the Fed's leap of faith into quantitative easing continues to
reverberate throughout the markets. The immediate effect of Ben Bernanke's plan
to directly intervene by buying up to $300B in treasuries has been to force
down the dollar, sending front-month crude over $50 and spot gold over $950.
Adding to the volatility, the IMF cut its global growth forecast to -0.5% to
-1.0% from +0.5-2.2% prior, and called on nations to extend stimulus plans into
2010. The Benchmark 10-year yield seems is steadying around the 2.5% level for
the time being. Stock prices have been volatile as well with early gains
generally giving way led by selling in the financials.
- Citigroup has outlined its strategy for converting the Federal government's
big stake in the bank to common equity from preferred stock. The bank has
registered 4.38B common shares for the conversion, which is about 80% of its
5.5B shares of outstanding common stock, and plans to ask its shareholders to
authorize an expansion of its share authorization to as much as 60B shares, as
it needs up to 16B shares to fulfill the entire preferred stock conversion.
Some noted that Citi will also be doling out common shares to employees in lieu
of cash bonus payments, given the continuing financial bonus brouhaha. In
addition, Citi said it intends to undertake a reverse stock split at a ratio of
somewhere between 1-2 to 1-30 at a date before June 2010, to eventually mop up
the big pool of shares that will result from the conversion. Finally, the bank
said it would sell $3B in credit card bonds under the TALF program. Note the
WSJ reported overnight that some hedge funds have gotten crushed thanks to
their moves to ride the government's coattails and buy preferred shares in
Citi, only to see the spread between the common and preferred stock narrow
rapidly and considerably over the last few weeks. Shares of Citi rose 25%
before the open, only to cut those gains in half by mid morning.
- In other finance sector news, GE is holding an investor day event today. In a
filing ahead of its investor presentations, GE reiterated that GE Capital
should be profitable in Q1 and FY09, and that GE does not need outside capital,
echoing comments from the CFO on CNBC two weeks ago. It also said it is very
difficult to execute asset sales in today's market, but believes TALF may help,
noting that many macroeconomic indicators are still deteriorating. Credit card
company Discover Financial managed to stomp the analysts earnings estimates
thanks to a big payment from its successful antitrust suit against Visa and
Mastercard. But the company's metrics are still deteriorating, with rising
delinquency rates and charge-offs indicating that there's still trouble ahead
for the firm. Adding to the pressure on the credit card industry, in a speech
last night President Obama said he supports a credit-card bill of rights,
insisting that banks have pushed credit cards in "damaging way."
Shares of DFS-4% were in the red mid morning, along with those of competitors
AXP, COF, V and MA.
- Oracle is a big winner this morning, with shares up 13% in the early going.
Yesterday afternoon the tech firm modestly beat estimates and declared its
first-ever dividend, of $0.05/shr. FedEx reported weak Q3 earnings, missing
analyst estimates by more than 25 and guiding next quarter way below par. FedEx
cited continued deterioration in global economic conditions leading to lower
volumes at FedEx Express and FedEx Freight as the reason for the declines. But
on an up note, the CEO said "we probably have hit bottom," noting he
expects to see sequential q/q improvement moving forward. Shares of FDX+6% have
sustained solid gains in early trading. Multiple retailers reported Q4 results
that were either in line or a bit ahead of (already diminished) expectations
this morning. PLCE, ROST and BKS made respectable gains ahead of the open, most
of which evaporated with the overall declines in major indices.
- In currencies, the greenback remained on the defensive into the New
York session thanks to pressure from the latest round
of Fed quantitative easing. Dealers were noting that the Fed's dive into buying
Treasuries would expand its balance sheet and could stroke inflationary
concerns, hurting USD sentiment. Chatter also focused on the implications for
the United States'
AAA rating. EUR/USD finally broke above the initial post-Fed quantitative
easing resistance of 1.3536, moving towards the 1.37 level for fresh seven-week
highs. A few currency analysts are calling for a EUR/USD target toward the 1.40
handle. The yen was firmer compared to opening levels from the Asian session,
with USD/JPY was probing below the critical 95 neighborhood throughout the NY
morning. Note that this has been a pivot level over the last decade for setting
trends. GBP/USD was back above the 1.45 level for the first time in three
weeks. USD/CHF was weaker as well, testing 1.1220 during the session. With
front month NYMEX crude futures at level week highs and back above the $50
handle, the CAD and AUD were firmer. Spot gold also aiding their cause as it
held the pivotal $880/oz level in cash on Wednesday and looks poised to retest
the $1,000 level.
- In other cross action, EUR/JPY was unable to sustain a move above the 130
level during the Asian morning. EUR/CHF held the 1.5350 level in the New
York session amid fresh rumors that the SNB was again
buying euros for Swiss Francs. Note that the EU's Solana said the Ukraine
situation could have implications for the Euro Zone earlier today. Germany's
IFO's Sinn commented that without a joint euro bond issue the euro could
"go bust" and noted that it would be difficult to bail out a large EU
country such as Italy.
In currencies, the greenback remained on the defensive into the New
York session thanks to
pressure from the latest round of Fed quantitative easing. Dealers were noting
that the Fed's dive into buying Treasuries would expand its balance sheet and
could stroke inflationary concerns, hurting USD sentiment.
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