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Overnight Global News

• The European DJ Stoxx 50 this morning is trading +0.50% and Dec S&Ps are up +1.06%. The US and European stock markets are bracing for a weak US unemployment report this morning, but bullish factors include short-covering after the two-day plunge, hopes for continued central bank rate cuts, and a continued decline in interbank lending rates. The 3-month dollar Libor rate today fell 10 bp to a 4-year low of 2.29% and the Libor-OIS spread fell 9 bp to 174 bp. British Airways rallied 10% today after raising its revenue guidance and saying it will cut flights to complete its cost-cutting plan. Munich Re rallied 4% today after reaffirming its plan to raise EPS by 10% through 2010 and saying it will continue its share buyback program. Asia-Pacific stocks today closed mostly higher: Japan -3.55%, Hong Kong +3.29%, China +1.70%, Taiwan +1.03%, Australia -2.37%, Singapore +2.43%, South Korea +3.54%, Bombay +2.36%. South Korea's central bank today cut its benchmark rate for the third time in four weeks and indicated that further rate cuts may be forthcoming.
• US unemployment report Today's Oct payroll report is expected to show a decline of 200,000, which would be the tenth consecutive monthly decline and would bring the overall payroll loss in the past ten months to -860,000. The payroll series during the last recessionary period in 2000-03 showed declines of more than 200,000 in only four months, with the largest decline being 325,000 in October 2001. However, the experience seen in the last recession suggests that we are in for at least several months of payroll declines in excess of 200,000 during the current cycle. Payrolls are likely to continue to decline over at least the next several months as businesses reduce their employee head counts to reduce expenses amidst a steep recession. The unemployment data typically lags the business cycle, meaning the unemployment data is likely to remain weak past the trough of the recession, whenever that point is reached.
• Meanwhile, today's Oct unemployment rate is expected to rise +0.2 points to 6.3%, which would match the 14-1/2 year high of 6.3% posted in June 2003 during the last economic bust. The US unemployment rate is likely to continue to rise in coming months and may challenge the previous cyclical high of 7.8% posted in June 2002, which was the highest US unemployment rate in 24 years. The highest US unemployment rate in post-war history was 10.8% posted at the tail end of the double dip recessions in Jan-July 1980 and July-81 to Nov-1982. Hopefully the US unemployment rate will not get close to that record high during the current economic bust, although the 1982 recession was not all that severe on its face with a 2.9% overall drop in real GDP from peak to trough.
• Pending home sales Today's Sep pending home sales report is expected to show a decline of 3.4%, reversing part of the +7.4% rise seen in August. US pending home sales in August on a year-on-year basis rose +5.0%, the strongest figure since 2005. The pending home sales report measures the change in home sales contracts and generally leads to existing home sales within one to two months, thus providing some leading information on the existing home sales series. The +7.4% rise in pending home sales in August in fact foreshadowed the report that existing home sales in September showed an increase of +5.5% m/m and +1.4% y/y (the first y/y increase since November 2005). The +5.5% rise in existing home sales in September would have been more encouraging except that 35-40% of the existing homes sold in September were of foreclosed homes, which were sold at fire sale prices. Nevertheless, any homes that were sold and were subtracted from the huge inventory of homes on the market represents a positive longer-term development for the US housing market.

Overnight U.S. Stock News

• December S&Ps this morning are trading +9.60 points on some short-covering after the 2-day plunge and on increased hopes for more FOMC rate cuts. The US stock market yesterday added on to Wednesday's losses and closed sharply lower (Dow -4.85%, S&P 500 -5.03%, Nasdaq Composite -4.34%). The S&P 500 Index has lost 10% in the last 2 days.
• Bearish factors for stock prices yesterday included (1) the tumble in Asian and European stock markets before the US market even opened, (2) the larger-than-expected rise in weekly continuing unemployment claims up to a 25-1/2 year high of 3.843 million, (3) the unexpected decline in the Oct ICSC chain store sales with the -0.9% decline representing the biggest monthly drop in 1-1/2 years, (4) the continued ratcheting down of US company profit estimates as more than 30% of companies missed analysts' estimates in Q3, the most since Q4 1997, (5) the 14% fall in General Motors as the automaker seeks government aid to survive through 2009, and (5) concern that today's US employment report for Oct will show the US economy losing jobs for the 10th straight month.
• Bullish factors for stock prices yesterday included (1) the prediction from Merrill Lynch that fund managers will reallocate capital from Europe and Asia and invest in US stocks on speculation the Obama administration will introduce measures to revive the US economy, (2) the fall in crude oil prices by -$4.53 per barrel to a 1-1/2 year low and the fall in gasoline prices to a 2-1/2 year low, and (3) the $2.2 billion increase in inflows into stock mutual funds in the past week, the first net deposit since July according to TrimTabs.
• Ford (F) this morning reported an operating loss of $1.31 per share which was larger than the consensus expectation for a loss of 93 cents. Ford also reported that its cash fell to $18.9 billion on Sep 30 from $26.6 billion on June 30 after its used $7.7 billion in cash during the quarter to cover its losses.
• Nvidia (NVDA) is 12% higher in European trading after the computer-graphics chip maker reported better than expected Q3 revenue and EPS and announced a new contract with Apple.
• Wells Fargo (WFC) is down 4% in European trading this morning after the bank was able to raise $11 billion by selling common stock to help pay for its purchase of Wachovia.
• Walt Disney (DIS) is down 2.7% in European trading after the company reported weaker than expected Q3 EPS ex-items of 43 cents (vs the 49-cent consensus) and said that reservations at its theme parks have "fallen off considerably."

Today's U.S. Market Focus

• December 10-year T-notes this morning are trading +1.5 ticks. December T-note prices yesterday closed unchanged. Bearish factors for T-note prices yesterday included (1) the steepening of the yield curve which remains near its highest level in almost five years as the short-end of the curve is underpinned by easier Fed monetary policy while the longer-end of the curve is pressured by increasing supply, and (2) the rise in mortgage rates which spurs investors into swap contracts and fuels selling of 10-year Treasuries by dealers hedging their risks in the swaps market. Bullish factors for T-note prices yesterday included (1) the larger-than-expected rise in weekly continuing unemployment claims (+122,000 to a 25-1/2 year high of 3.843 million versus expectations of +25,000 to 3.740 million), (2) carryover support from European debt prices as the yield on the 10-year German bund dropped to a 1-3/4 year low as the ECB cut rates 50 bp as expected but ECB President Trichet hinted there may be more rate cuts to follow, and (3) a flight-to-safety as global equity markets sold off.
• The dollar is trading lower this morning with the dollar/yen down -0.49 and the euro/dollar up +0.54 cents. The dollar index yesterday closed mildly lower. Bearish factors for the dollar yesterday included (1) the jump in US weekly continuing unemployment claims to a 25-1/2 year high, (2) the unexpected drop in Oct ICSC chain store sales with the -0.9% y/y decline representing the biggest monthly fall in 1-1/2 years, and (3) strength in the yen due to carry trade unwinds as the equity market plunged. Bullish factors for the dollar yesterday included (1) the unexpected 150 bp rate cut by the BOE and the unexpected 50 bp rate cut by the SNB to go along with the expected 50 bp rate cut by the ECB, highlighting the rapidly deteriorating European economic outlook, (2) French Finance Minister Lagarde's cut in his ministry's estimate for French economic growth for 2009 to between +0.2% and +0.5% and for 2010 to +2.0% from earlier estimates of +2.5% and his comment that the forecast is the lowest growth forecast a French government has ever made, and (3) comments from ECB President Trichet that he can't rule out further ECB interest rate cuts because the global financial crisis may lead to an extended economic slump.
• December crude oil prices this morning are trading +$1.38 a barrel and December gasoline is trading +2.55 cents a gallon. Bullish factors this morning include the lower dollar and some short-covering. December crude oil prices yesterday extended Wednesday's sell-off and closed -$4.53 a barrel at a 1-1/2 year low while December gasoline closed -8.84 cents a gallon at a 2-1/2 year low. Bearish factors for crude oil prices yesterday included (1) the rally in the dollar index, (2) the plunge in global equity markets, (3) the surge in US weekly continuing unemployment claims to a 25-1/2 year high, and (4) comments from ECB President Trichet that the financial crisis may lead to an extended slump in the Euro-Zone, weakening energy demand further. A bullish factor for crude oil prices yesterday was the prediction from the IEA that crude oil prices will rebound to average $100 per barrel between 2008 and 2015 as the threat of a "supply crunch" remains

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): BRK-Berkshire Hathaway (BEST earnings consensus $1,850.00 per share), EIX-Edison International (1.52), S-Sprint Nextel (0.02), IMCL-Imclone Systems (0.28), F-Ford Motor Company (-0.84), FNM-Fannie Mae (-1.40), CPN-Calpine (0.39), DISCA-Discovery Communications (0.18), WIN-Windstream (0.27), GM-General Motors (-3.21), 992-Lenovo Group (0.01), MIR-Mirant (1.00), WR-Westar Energy (0.80), RRI-Reliant Energy (-0.05), LPNT-Lifepoint Hospitals (0.61), VGR-Vector Group (0.23)

Global Financial Calendar