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Overnight Global News

• The European DJ Stoxx 50 this morning is down -0.82%% and March S&Ps are down -0.30 points (-0.03%) as global equity markets brace for the start of an expected lackluster earnings season. Asia-Pacific stocks closed mostly lower today with Hong Kong -2,83%, China +0.12%, Taiwan -0.31%, Australia -1.40%, Singapore -1.65%, South Korea -2.05%, India -3.15%. Japanese markets were closed today for Coming-of Age Day Holiday. UBS AG is trading nearly 6% lower this morning after the newspaper SonntagsZeitung reported the bank may post an 8 billion-franc ($7.2 billion) loss for thr fourth quarter. STMicroelectronics, Europe's largest computer-chip maker, is down 3.6% this morning after being downgraded to "sell" from neutral" by UBS, citing a risk of revenue coming in lower than revised guidance. The Russian ruble fell to a 5-3/4 year low against the dollar today after Russia's central bank devalued the ruble for the 14th time in the last 2 months and as slumping oil prices threaten to deepen Russia's financial crisis. Russia is experiencing its worst economic crisis since defaulting on $40 billion of debt in 1998 with the current dispute between Russia and Ukraine over natural gas further deterring investors. The International Monetry Fund (IMF) may need another $150 billion to counter mounting losses from the global financial crisis and will make a "significant" increase in its $1.4 trillion projection for global financial losses and writedowns, said IMF Managing Director Dominique Strauss-Kahn. The IMF also noted that the governments in Western Europe are "behind the curve" in implementing stimulus packages and are "underestimating" the effects of the crisis as the full impact of the crisis has yet to hit the region. On the brighter side, Nomura Holdings predicts global stocks will gain 25% this year as government measures revive the economy and investors move from cash into equities and reports that Citigroup may earn as much as $10 billion by selling control of its brokerage to Morgan Stnaley, helping it to replenish depleted capital.
• Market focus - Market attention this week with focus on (1) Wednesday's Dec retail sales report (expected 1.2%) and the extent to which it confirms the plunge in consumer spending, (2) the Dec PPI and CPI reports on Thursday and Friday which are likely to show a sharp decline and indicate that the Fed's problem at present is deflation rather than inflation, (3) the S&P 500 index which faded late last week on weak economic data and is now focused on the start of Q4 earnings season, (4) T-note prices which rallied later last week with help from last Friday's alarming 524,000 decline in Dec payrolls and the +0.4 point rise in the Dec unemployment rate to a 16-year high of 7.2%, (5) the dollar which remains near the top of the 3-week recovery rally but remains vulnerable if the credit crisis continues to recede, and (6) crude oil prices which fell back last week after big rises in the DOE's weekly inventory report.
• Earnings season The Q4 earnings season officially kicks off today with Alcoa reporting its Q4 earnings. Of the S&P 500 companies, eight report Q4 earnings this week, 52 next week (the week beginning Jan 20), and 99 in the following week (the week beginning Jan 26). The market consensus is that Q4-2008 earnings will fall by 15.1% y/y, which is much more pessimistic than expectations as of Jan 1 for a decline of 1.2% and on Oct 1 for an increase of 47%, according to Thomson Reuters. The market consensus is that S&P 500 earnings will fall by 13.3% in Q1-2009, by 12.5% in Q2-2009, and then stabilize to +1.8% in Q3-2009.
• Fed policy The market last week reduced expectations by about 10 bp for the funds rate target in the latter half of 2009 and 2010. The market is still expecting the Fed to maintain its current funds rate target of zero to 0.25% through May 2009. The market is then expecting a slow rise in the funds rate target to 0.50% by October 2009, 0.75% by Feb 2010, and 1.00% by May 2010. The FOMC in the minutes from the Dec 15-16 FOMC meeting, which were released last week, detailed the dismal state of the US economy and effectively promised to maintain extremely low interest rates for an extended period of time. The FOMC also said it is considering expanding its current liquidity programs and is considering explicit quantitative easing through the purchase of large quantities of longer-term Treasury securities.

Overnight U.S. Stock News

• March S&Ps this morning are slightly weaker by -0.30 points. The US stock market last Friday couldn't overcome the weak Dec payrolls report as it ground lower throughout the day and finished near the low (Dow -1.64%, S&P 500 -2.13%, Nasdaq Composite -2.81%). The S&P 500 Index lost -4.5% for the week.
• Bearish factors for stock prices last Friday included (1) concerns that the US recession is deepening after Dec nonfarm payrolls declined -524,000 for the 12th consecutive month of job losses and also showed the US economy losing a total 2.589 million jobs in 2008 with the unemployment rate jumping to a 15-year high of 7.2%, (2) the sell-off in big-name energy and oil-service companies after crude oil fell for the fourth straight session to a l-week low, and (3) trepidation ahead of earnings season that kicks off this week which is expected to be full of disappointing forecasts and cautious commentary with earnings at S&P 500 companies expected to fall again in Q4 and bring the streak of declines to a record six consecutive quarters.
• Bullish factors for stock prices last Friday included (1) the $41 billion in US corporate bond sales this past week, the most sold in nearly 8 months and a sign that US companies are finding easier access to capital markets, and (2) the narrowing of the TED spread to a 4-month low, a sign the interbank lending crunch is continuing to thaw and that banks may be more willing to lend.
• Pfizer (PFE) is trading 1.4% higher in European trading this morning after Goldman Sachs upgraded the world's biggest drugmaker to "neutral" from "sell.

Today's U.S. Market Focus

• March 10-year T-notes this morning are higher by +3 ticks. March T-note prices last Friday whipsawed higher and closed up +7.5 ticks at a 1-week high. Bullish factors for T-note prices last Friday included (1) concerns that the US recession is deepening after Dec nonfarm payrolls declined -524,000, close to market estimates although Nov was revised lower to -584,000 from -533,000, bringing the total US job losses for 2008 to 2.589 million, the most since 1945, (2) the largest monthly drop in manufacturing payrolls in 7-1/2 years (-149,000 versus expectations of -100,000), (3) the larger-than-expected rise in the Dec unemployment rate (+0.4 to a 15-year high of 7.2%), (4) the action by the Fed in buying $1.4 billion of Fannie Mae, Freddie Mac and FHLB debt as the Fed has now bought a total $16.4 billion of agency debt since last month in an attempt to lower mortgage costs, and (5) flight-to-safety as demand increased for Treasuries after the stock market tumbled. Bearish factors for T-note prices last Friday included (1) the prediction from Bank of America that the US Treasury will need to boost debt issuance "significantly" to meet financing needs of $2.14 trillion in 2009 and $1.02 trillion in 2010, (2) the rise in US corporate bond sales this week to a near 8-month high of $41 billion as the Treasury's liquidity programs are starting to thaw frozen credit markets, and (3) the narrowing of the TED spread, the difference between what banks and the Treasury pay to borrow money for 3-months, to a 4-month low of 1.19%, a sign that banks are more willing to lend.
• The dollar this morning is slightly higher with the dollar/yen -0.56 yen and the euro/dollar -0.44 cents. The dollar index last Friday shrugged off the weak US payrolls report and closed higher. Bullish factors for the dollar last Friday included (1) relief that the Dec nonfarm payrolls came in at down only -524,000, above a -700,000 whisper number forecast by Merrill Lynch, (2) weakening industrial production throughout Europe after industrial production for Nov in Germany fell for the third straight month and fell for the fourth consecutive month in France, and (3) comments from Bundesbank President and ECB Council member Axel Weber that Germany's economy may contract by more than expected this year as the recession deepens, stoking speculation he may favor additional ECB interest rate cuts. Bearish factors for the dollar last Friday included (1) the rally in the yen to a 1-week high against the dollar as the stock market fell apart and investors purchased yen to cover their carry trades, and (2) the prediction from Deutsche Bank that the US dollar is "overcooked" as the combination of extremely lax US monetary policy, various deficit issues and the only capital inflow being into US Treasuries, is running out of steam and point to a renewed dollar tumble.

• February crude oil prices this morning is trading -$1.94 a barrel lower a a 1-1/2 week low and February gasoline is down -2.83 cents a gallon. Undercutting crude oil prices today are the predictions from top Chinese government officials that the country may miss the government's 8% annual growth target this year along with Goldman Sachs prediction that "weak underlying economic fundamentals" may send crude prices to as low as $30 a barrel this quarter. the February crude oil prices last Friday ended lower for the fourth consecutive session as they closed down -$0.87 a barrel at a 1-week low although February gasoline managed to close higher by +2.30 cents a gallon. Bearish factors for crude oil prices last Friday included (1) the stronger dollar, (2) fears of a protracted recession in the US after the Dec payrolls report showed the US losing jobs for the 12th consecutive month along with a total job loss of 2.589 million for 2008, the most since 1945, (3) the action by Deutsche Bank in lowering their average price for crude oil in 2009 to $45 a barrel from $47.50 a barrel saying crude consumption will fall by 1 million bpd to 84.68 million bpd this year, and (3) the contango pricing structure in the crude oil market where Dec crude is priced 44% higher than Feb crude, prompting refiners and distillers to continue building crude oil inventories, which keeps pressure on prices. Bullish factors for crude oil prices last Friday included (1) a possible increase in fuel demand after the National Weather Service forecast below-normal temperatures for the central and eastern parts of the US from Jan 14-22, and (2) comments from OPEC President Jose Maria Botelho de Vasconselos that the current crude oil "price trend is not comfortable."

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): SCHW-Charles Schwab (BEST earnings consensus $0.26 per share), AA-Alcoa (-0.08)

Global Financial Calendar