- GM's bankruptcy filing, which arrived just before 8amET, is captivating the
media this morning, with front pages, home pages and talking heads discussing
little else. So far equities are responding well to the long-expected news,
with all three leading indices opening higher and pushing out to around 2.5%
gains by mid morning, extending Friday's solid gains. The DJIA was adjusted
this morning, with CSCO replacing GM, and Travelers replacing Govt capital
infused Citigroup; shares of CSCO and TRV are up 4% or so on the move. On the
data front, April Construction Spending was much better than expected, posting
its biggest monthly gain since last August, coming a hair to the positive side
at 0.8% versus expectations of -1.5%. The May ISM Manufacturing reading was in
line, although traders are focusing on the much better than expected prices
paid and new orders component, with the latter hitting its highest level since
November 2007. Commodities continue to rally, with front-month crude pushing
out yet again to six-month highs around $67.50, although gold is off earlier
highs, at $977.
- Little new has emerged in the flurry of GM news this morning, with most of
the details disclosed previously through waves of sources, press releases, and
official comments over the course of the last few weeks. To recap, GM is still
expected to emerge from Chapter 11 protection (the largest industrial
bankruptcy in US history) in 60 to 90 days stripped of most debt, with
ownership of 60.8% by the U.S. Treasury, 11.7% by the Canadian and Ontario
governments, 17.5% by the New VEBA, and 10% by unsecured bondholders. Over in Europe,
brokered a deal to sell GM's Opel unit to a consortium of buyers that includes Russia's
state-owned Sberbank (35% stake), Magna International (20% stake) and Opel
employees (10% stake). GM will retain a 35% stake in the unit. Germany
is extending â‚¬1.5B in funding for the deal, although German Chancellor Merkel
was keen to mention that the Opel situation is putting US-German relationship
under strain. Note that there have also been multiple reports over the weekend
that fellow bankrupt automaker Chrysler is expected to emerge from bankruptcy
as soon as today. And also note that the CEO of auto retailers AutoNation told
CNBC this morning that he believes annual auto sales will be back over 14M
units in five years, up from the dismal forecasts for 9M in overall sales in
- Morgan Stanley and Citigroup have closed early on the launch of their joint
venture, which combines Morgan Stanley's wealth management unit with Citi's
Smith Barney division in a new unit called Morgan Stanley Smith Barney. The JV
was originally scheduled to launch in Q3. Morgan holds a 51% stake in the
venture, which generates about $14B in net revenue a year. Goldman Sachs has
sold $1.9B worth of shares in Industrial and Commercial Bank of China,
representing nearly 20% of Goldman's 4.93% stake in the Chinese bank, which is
the world's biggest lender by market value. Regional bank Zions Bancorp popped
7% before the open after announcing debt and stock sales to shore up its
balance sheet, although shares were down to +3% by mid morning. SunTrust also
launched a $1.4B common stock sale, although shares of the regional bank are
down 2% on the dilutive news.
- In currencies, the strong risk appetite sparked by China
and India's PMI
data continued to build in the New York
session, finally weakening JPY against its major pairs. EUR/JPY and GBP/JPY exhibited
several hundred pip moves in the session on the returning risk appetite.
Commodity currencies held onto most of their earlier gains despite some
retrenchment in the energy and metals. Canadian GDP data was a bit better than
expectations, but a slight back-month downward revision prompted a modest bout
of profit-taking in CAD. There has been a degree of verbal intervention from
some G20 central bankers. The South African Reserve Bank's Mboweni noted that
the current level in the rand could mitigate inflation, but its strength was
unwelcome for balance in the economy. The Russian Central Bank's Ignatiev said
there has been excessive strengthening of the ruble from the real economy's
point of view. However, he vowed to maintain volatility as the ruble moved
toward a free-float regime. EUR/USD ended the NY morning around the 1.42 area.
Dealers are pondering whether the "threshold of pain" around the 1.50
area discussed by the German Exporter Association back in the days prior to the
global recession remains intact.
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