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U.S Market Update

Fri, Oct 3 2008, 16:23 GMT
by Trade The News Staff

TradeTheNews.com

- Markets opened higher this morning despite the worse-than-expected September jobs reading as investors focused on improving prospects for the House to pass the financial rescue bill and Wells Fargo's offer for Wachovia. Oil approached multi month lows near $91 before recovering after 8:30, and gold is about flat for the day after being down as low as $822. The credit markets have not come out of the freezer and the fear remains palpable: today's three-month USD LIBOR fixing is 4.33% compared to 4.21% yesterday, while the three-month USD LIBOR/OIS spread hitting an all- time high of 287 bps. Before the bell WB +70% said it would merge with WFC+10% in an all-stock deal valued at around $15B, without any financial backing from the FDIC or other aid. WFC said it would acquire the entirety of the bank, including deposits and debt, valuing WB at $7/shr. Recall that back on Sept 29 Citigroup signed its own deal to acquire Wachovia for $2.1B, although the earlier deal was for a slightly lesser range of the bank's assets and losses, and involved a $12B payment to the FDIC for the later absorption of certain losses beyond the $42B figure. Citi responded to WFC's move by calling the offer severe interference and a breach of its exclusivity agreement with Wachovia. The FDIC said that it stands behind Citi's previously announced deal, but also noted that both deals would support creditors and depositors and that it would “review all proposals.” WFC was up 10% on the news after the open, but has come off those levels, while Citi is down 10% and WB rose 70% to match the Wells Fargo offer. Other major financials were strong on the news, with MS+10%, GS+5% and BAC+5%. JPM is hovering around even. Regional banks are also surging, with NCC+25% and SOV+15%. Leading corporations that had been under significant pressure yesterday from credit fears are up in early trading as investors gamble on the House “making the right choice,” with AA+6%, IBM+4%, HPQ+4% and CAT+2.5%. Insurance firms MET+10% and HIG+14% were surging after sharp declines yesterday that certain traders attributed to errant comments from Senator Reid. Gaming names are getting hit after PENN-12% cut its revenue outlook after the close yesterday, citing the impact of the slowing economy, among other factors: WYNN and MPEL down 4%, and LVS and MGM down 7-8%. Readers should note that Apple's Steve Jobs is hale and healthy, and has not suffered a heart attack according the company spokespers; rumors circulated just after the open that Jobs had been taken to the hospital with chest pains. Apple called the rumors baseless, and the 8% drop in its shares has recovered to above its opening price.

- The House began debate on the bailout rescue package just before the open. The consensus appears to be that changes made after the failure of the package on Monday have increased its chances of passage, although the measure is by no means a shoe-in. This morning House Minority Leader Boehner said the bill is better than week ago, but not perfect, noting that calls from constituents are coming in evenly in support and against bill (versus a majority against on Monday). The bill passed a procedural vote mid morning, allowing the House leadership to bring it to vote, although some commentators had noted that House leaders would not initiate a final vote unless they were sure of passage. If the House passes the bill without changes it can go directly to the President to be signed. If the House decides to add amendments to the bill, then it will have to go to a conference committee between the House and Senate to reconcile the two varying bills. Reportedly a group of 23 US House Republicans are seeking to reduce the total rescue package size to $250B from $700B.

- The dollar is poised to post its best week in more than 15 years, with the USD higher by 750 pips against the EUR, up 600 pips against the GBP and just under 400 pips against the CHF. The greenback performed better against emerging market currencies, gaining over 1700 pips against the Brazilian Real (BRL), even managing to hold onto gains despite the soft US employment reports of this morning. Liquidity concerns remain on the front burner, however, thanks to rumors circulating about a German investment/pension fund having “difficulties.” The ECB's Bini Smaghi reiterated most of the previous day's comments formal press conference, noting that the central bank would assess any interest rate change at the "appropriate time," adding that there was no doubt the financial crisis has had an impact on the real economy. Bini Smaghi said that given the uncertain economic environment, ECB staff forecasts could quickly become obsolete

Published on  Mon, Oct 6 2008, 08:01 GMT