U.S. Morning Call for Friday, November 21, 2008 Overnight Global News
Nov 21, 2008

Overnight Global News

• The European DJ Stoxx 50 this morning is trading mildly higher by +0.36% on better-than-expected earnings from Dell, improved sentiment about Citigroup, and some short-covering in banks and mining companies. Banks are trading higher today with UBS and Deutsche Bank up more than 5%. BHP Billiton, the world's largest mining company, is up 10%, and Rio Tinto is up 8%. Asia-Pacific stocks today kicked off the improved sentiment by rallying even in the face of yesterday's sharp US stock market sell-off: Japan +2.70%, Hong Kong +2.93%, China -0.61%, Taiwan +1.98%, Australia +1.90%, Singapore +2.98%, South Korea +5.84%, Bombay +5.49%.
• The Bank of Japan at its policy meeting early today decided to leave its key overnight call loan rate unchanged at 0.3%. The BOJ said it would expand liquidity measures by expanding the type of collateral it will take to loan money to banks and that it will be more flexible in its purchase of commercial paper to jump-start the commercial paper market.
• Citigroup's board will reportedly meet today to consider the firm's options after Citigroup stock yesterday fell to a 15 year low. Citigroup may seek to sell the entire company or sell off some of its assets to raise cash, according to the Wall Street Journal. Citigroup's stock is up 18% in European trading this morning, reversing part of yesterday's loss of 26%. Investors are concerned about the quality of Citigroup's balance sheet even though Citigroup earlier this week said it has "a very strong capital and liquidity position.

Overnight U.S. Stock News

• December S&Ps this morning are trading +22.30 points (+2.98%) on Citigroup speculation and general ideas that the market is severely oversold. The US stock market yesterday ended the day sharply lower after posting a new 11-1/2 year year low (Dow -5.56%, S&P 500 -6.71%, Nasdaq Composite -5.07%).
• Bearish factors for stock prices yesterday included (1) the worsening labor market with the unexpected surge in weekly unemployment claims to a 16-year high and the rise in continuing unemployment claims to a 25-3/4 year high, (2) the unexpected fall in the Nov Philadelphia Fed manufacturing Index to an 18-year low, (3) the larger-than-expected decline in Oct leading indicators, (4) the prediction from FBR Capital Markets that the US may need to spend another $1.2 trillion to recapitalize the eight largest financial institutions and stabilize the markets because private investors won't take the risk, (5) US lawmakers postponing a vote on a rescue plan for the auto industry until next month, (6) the 11% fall in the S&P 500 Financials Index to a 13-year low, and (7) continued panic selling as all 10 of the S&P's main industry groups slid at least 3.5% on concerns the economic slump is worsening and will lead to shrinking profits.
• Bullish factors for stock prices yesterday included (1) the plunge in the 10-year T-note yield to an all-time low yield of 2.99%, and (2) the 17% rally in Gymboree after the children's-clothing maker reported Q3 earnings of $1.06 a share, beating analysts' estimates of $1.03 a share (JPMorgan Chase subsequently upgraded the company to "overweight" from "neutral").
• Dell is up 6% this morning after its Q3 EPS of 37 cents per share was substantially higher than the consensus estimate of 33 cents

Today's U.S. Market Focus

• December 10-year T-notes this morning are trading -21 ticks on the higher trade in S&Ps. December T-note prices yesterday surged to a contract high and closed +1-15/32 points while the yield on the cash 10-year T-note plummeted to an all-time low yield of 2.99%. Bullish factors for T-note prices yesterday included (1) the unexpected rise in weekly unemployment claims (+27,000 to a 16-year high of 542,000 versus expectations of -11,000 to 505,000 with continuing claims soaring +109,000 to a 25-3/4 year high of 4.012 million), (2) the unexpected decline in the Nov Philadelphia Fed manufacturing index (-1.8 to an 18-year low of -39,3 versus expectations of +2.5 to -35.0), (3) flight-to-safety with the S&P 500 Index collapsing to an 11-1/2 year low and with a new round of fears about the US banking system, (4) the prediction by JPMorgan Chase that the Fed will cut the funds rate to 0% in the next two months on deflation concerns,and (5) the prediction from FBR Capital Markets that the US may need to spend another $1.2 trillion to recapitalize the eight largest financial institutions and stabilize the markets becasue private investors won't take the risk.
• The dollar this morning is mixed this morning with the dollar/yen up +1.15 yen and the euro/dollar up +1.20 cents. The euro rallied on the recovery in global stocks, which reduced the flight to dollars. The dollar index yesterday shot up to a 2-1/2 year high and closed higher. Bullish factors for the dollar yesterday included (1) the unexpected 100 bp interest rate cut by the SNB, sending the Swiss Franc to a 1-1/2 year low against the dollar, and (2) comments from ECB Executive Board member Smaghi that the ECB may cut interest rates more than once if needed, weakening the euro. Bearish factors for the dollar yesterday included (1) the rally in the yen to a 3-week high against the dollar as the tumbling equity market forced investors to unwind yen carry trades, (2) dismal US economic data with weekly unemployment claims jumping to a 16-year high and the Nov Philadelphia Fed manufacturing index falling to a 18-year low, and (3) the prediction from JPMorgan Chase that the Fed may cut the Fed funds rate to 0% over the next two months to halt the risk of deflation.
• January crude oil prices this morning are trading +26 cents a barrel and January gasoline is trading +2.11 cents a gallon on the lower dollar versus the euro and on today's rally in global stocks, which improved sentiment a bit about the global economy. January crude oil prices yesterday crumbled tthroughout the day and closed -$4.68 a barrel and January gasoline closed -10.36 cents a gallon. Nearest-futures December crude oil fell to a 3-1/2 year low yesterday while December gasoline plunged to a 4-3/4 year low. Bearish factors for crude oil prices yesterday included (1) the stronger dollar, (2) the action by Goldman Sachs in cutting its 2009 crude oil price forecast to $80 a barrel from $86 and saying "poor credit conditions and their negative implications for economic activity will continue to pressure crude prices," and (3) continued weak US economic data as weekly unemployment claims soared to a 16-year high and the Nov Philadelphia Fed manufacturing index plunged to an 18-year low. Bullish factors for crude oil prices yesterday included (1) speculation that shippers controlling more than 20% of the global fleet of crude-oil supertankers may avoid the Suez Canal due to the increase in pirate attacks, potentially increasing the cost of delivery, and (2) the prediction from Strategic Energy and Economic Research that global oil prices may rise to $70 a barrel early next year as OPEC output reductions take effect

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): HNZ-HJ Heinz (BEST earnings consensus $0.75 per share), SJM-JM Smucker (1.01)

Global Financial Calendar