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Forex Blog - US Market Update
Monday, October 19, 2009 11:19:27 AM
US Market Update
Dow +85 S&P +8 NASDAQ +12
- The first hour of trading was choppy as investors mulled over a mixed bag of corporate earnings absent of any US economic data. But following news that the Fed was testing reverse repo operations (as rumored in the press the last few weeks), investors bid up stocks and bonds, pushing up the leading indices. Equity markets were also helped by encouraging preliminary results from Daimler in Europe. The reverse repo operations will allow the Fed to drain cash from the financial system once it decides to exit its loose monetary policy. The Fed has conducted at least three tests of reverse repos since March. Front-month crude pushed out to yet another one-year high above $79 earlier before trading off a bit. Treasury prices remain near the unchanged mark holding onto a flatter curve. Short term yields were higher heading into this morning's floor open in Chicago and a Barron's cover story called on the Fed to raise rates. In electronic trade crude made another new high on the year just below $80, before backing off as traders shift their focus to the December contract.
- Shares of troubled lender CIT spiked as high as 20% this morning after Carl Icahn offered to underwrite a $6B loan for the company. Icahn criticized the company's current reorganization plan and slammed the current board for ineptitude. On Saturday CIT sweetened its offer for bondholders after too little debt was offered in its prior attempt at reorganization. CIT is down to +10% in mid morning trading.
- In earnings, BB&T offered lackluster results, missing bottom line estimates and reporting a big jump in provisions for credit losses. BBT is down 5% in early trading, and many of the other regional banks are in negative territory as well. Power distribution infrastructure manufacturer Eaton beat the earnings consensus but trimmed its full-year guidance. Shares of ETN are up 6% in the early going, while competitor ITT is up 4% in sympathy. Toy giant Hasbro is down 4% after missing revenue estimates, as investors ignore its bottom-line outperformance. Executives took pains to emphasize that revenue for the year will grow.
- The price action in currencies was subdued during the New York session as the dollar managed to claw off earlier lows thanks to vague chatter of a dovish think tank report on the ECB. Market participants are now focusing on the EcoFin Euro Zone ministers' meeting for potential market-moving comments. In Germany, the IFO's Sinn commented that a strong euro poses a risk for economic recovery and warned that the government should not withdraw stimulus measures before the end of 2010. The IFO noted that Germany is facing a credit crunch, and that the crunch would intensify next year.
- Dealers are noting that the verbal intervention seems to have come up a notch in recent weeks as EUR/USD approaches the critical 1.50 level. However, the overall view is that official concern and headlines are only one factor in the globalization of markets while the intentions of sovereign wealth funds continues a present process of reserves diversification is another force to content with. EUR/USD is holding above the 1.49 level ahead of the Euro-Zone EcoFin meeting that begins later today.
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