U.S. Market Update

Daily Forex Fundamentals | Written by Trade The News | Oct 17 08 15:44 GMT |

Dow -65 S&P -4 NASDAQ -5

Slumping housing data and the lower-than-expected University of Michigan confidence data held back equity markets in early trading, but optimism has retuned mid-morning as markets push back into positive territory. Libor has continued its incremental declines, and the US three-month TED spread has fallen back towards 380 basis points, well off the all time highs above 470. The oil majors are down as crude sustains its one-year lows around $70, although CVX and XOM are off their worst levels. SLB-8% is also off its lows this morning as declines in crude obscure the company's in-line earnings report. The oil services leader hedged its view of 2009, saying that while it anticipates slowing spending due to the economic downturn, the weakness of the existing supply base and historically falling reserve replacement could make up for any slowdown in business. In any case, it believes it will take 18 months for supply and demand to return to balance, given flat demand. The major financials are jumpy in early action, with the XLF swinging in and out of negative territory as traders consider the long-term implications of the "partial nationalization." None other than President Bush addressed the controversy himself this morning, insisting in a pre-market address that the Treasury's stakes did not amount to nationalization. As the majors grapple with the government, smaller financial companies are struggling with the realities of crisis. Regional banks First Horizon National and Zions Bancorp offered disappointing quarterly results, characterized by worse-than-expected earnings and revenue, sharply declining ROE, and climbing charge-offs and loan loss provisions. Both names were down 8-10% before the bell; FHN-2% has recovered nicely while multiple downgrades overnight are weighing on ZION-10%. Quarterly revenue was well below expectations at COF+6%, which reported troubling metrics yesterday after the close, including rising charge-offs and delinquencies in its credit cart and auto finance units. On the conference call, the CFO said he believes charge-offs will rise through the end of the year, but injected some optimism by insisting the firm can reach its sales growth targets for the year. CMA+2% is bucking the trend, blowing out earnings and revenue estimates and actually reporting lower loan-loss provisions. Recession fears are hitting industrial conglomerate HON-7% after the firm cut its full-year outlook before the open. On the conference call the CFO said he expects recession in 2009 and slowing growth in emerging markets. JCI-7% is down as well on the news. Tech heavyweights Google and AMD offered more-or-less positive earnings after the close yesterday. GOOG+6% reported strong growth metrics, with CEO Schmidt saying that search traffic is growing across the board. AMD+8% reported a loss that was one quarter the expected amount and trounced revenue estimates, showing gross margins 8% higher q/q.

Treasury yields have experienced a tight correlation to equity markets during the first half of the session. As US stock indices moved into positive territory the yield on the ten-year moved back towards 4% and the two-year has regained the 1.6% mark. Again there has been some thawing of credit markets visible, as the three-month LIBOR fixing improved another 9 basis points and the yield on the three-month T-bill has climbed back above 0.6%. In currencies some of the dollar safe haven buying was unwound when stocks went green, but both the euro and cable are struggling to hold onto positive territory.

Trade The News Staff
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