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U.S Market Update

Thu, Oct 9 2008, 16:30 GMT
by Trade The News Staff

TradeTheNews.com

- Markets opened higher this morning but pretty quickly moved into negative territory led by another round of intense selling in the financials. This comes after the SEC's short trading ban on selected names expired without renewal last night. IBM's earnings pre-annoucement and reports that the Treasury would move to take direct ownership stakes in banks provided investors with some initial support. Overnight the New York Times and other media reported that the Treasury would use the powers granted to it under TARP to inject cash directly into banks that request it in return for ownership positions in banks, including healthy ones. IBM's Q3 attempted to reassure investors. Earnings came in ahead of estimates, margins were higher y/y and the company reiterated its full-year outlook. The major financials are dragging down indices mid morning: after rising around 5% before the bell, WFC and MS plunged from the open thanks to the heightened nervousness over the Wachovia drama and Mitsubishi UFJ's investment. Note that the WSJ reported overnight on both deals, confirming that both Mitsubishi and MS remain committed to their investment pact, and that discussions are ongoing between Citi and Wells Fargo on carving up Wachovia. After Morgan Stanley declined more than 20%, reports circulated that Mitsubishi was mulling an acquisition of the entire firm, helping the financials off their worst levels. PRU-30% has fallen off a cliff this morning in early trading for no apparent reason. HIG-10% and MET have given up early gains in sympathy. Panicky investors sold off GM and Ford as well this morning, with GM declining as much as 20% at one point; both names are off their worst levels but still deep under water. Note that overnight GM reported a slight decline in its YTD European sales volumes, with the company noting that it "is facing an unprecedented set of economic challenges due to the global economic crisis." The remainder of the September same-store sales reports came in this morning, continuing yesterday's sob story for retail, with a few exceptions. High-end retailers BKE+8% and APP+2% have defied the trend, with both reporting sales +15% or more for the month. ARO also did alright, with sales +5%. HUN+25% was very strong after Hexion said that it wants to close its acquisition quickly and Apollo said it would make capital contribution of $540M to the deal to address issues raised last week's Delaware court decision.

- In currencies, tough sledding conditions remained the norm in markets as traders continued to mull over the recent central bank moves and wonder whether the core problems that caused this leg of the financial crisis have been addressed at all. Today's Libor fixing rose to 4.75% versus 4.53% prior, among chatter that the ECB would launch a clearinghouse for Libor and other talk speculated that the G7 would guarantee all inter-bank lending. The US 3-month TED spread made fresh all time highs above 400 basis points. The Fed noted that US commercial paper outstanding w/w fell by $56.4B compared to last's week drop of$ 94.9B. The expiration of the US short-selling ban has prompted equity traders to continue questioning whether the US government should be interfering in the operation of markets. The risk aversion theme slowly crept back into sentiment as various financial names maintained a heavy tone. The EUR/JPY is approaching the 137 handle after testing 139 in the NY morning. The USD/JPY is some 75 pips off its best levels experienced in NY as it tests 100.70 and a similar pattern for the EUR/CHF cross.

Published on  Fri, Oct 10 2008, 07:22 GMT