Swing Trading Strategies & Stock Picks Since 2003

Overnight Global News

• The European DJ Stoxx 50 this morning is sharply higher by +5.51%. Asia-Pacific stocks today closed mostly with sharp gains: Hong Kong +10.24%, China +4.12%, Taiwan -2.15%, Australia +5.55%, Singapore +6.57%, South Korea +3.62%, and Bombay +7.42%. Japan's stock market was closed today for a public holiday.
• European bank stocks are sharply higher this morning with UBS up 15%, Deutsche Bank up +12%, and ING up +17%. In the UK, bank stock are mixed with Barclays up 8% but Lloyds down -5.7%. RBS is down -6% and HBOS is down -21% after news that the UK will take controlling stakes in the two banks after making large capital injections to ensure their ongoing viability. Morgan Stanley is up 24% today. There are reports that Morgan Stanley and Mitsubishi UFJ are renegotiating the $9 billion capital injection but that the transaction will still proceed. Morgan Stanley said last week that they planned to have that deal closed by Tuesday, but a hitch now is to obtain an agreement from the US Treasury not to wipe out Mitsubishi's equity stake if the Treasury ends up injecting capital into Morgan Stanley. Banco Santander, Spain's largest bank, is up 7% this morning. Banco Santander is reportedly in talks to buy Sovereign Bancorp, the largest US savings and loan bank.
• There have been a substantial number of weekend events that have boosted confidence that US and European governments may finally be getting the upper hand in containing the credit crisis. This morning, the Fed, in conjunction with the ECB, Bank of England and Swiss central bank, offered unlimited dollar funds to UK and European banks with maturities of 1-week, 1-month and 3-months. This liquidity move backstopped Sunday's European summit agreement for a coordinated European plan to address the credit crisis, which includes direct capital injections into banks, government guarantees for bank debt, and a rollback in mark-to-market accounting. There are reports today that Germany, formerly the laggard in joining the rescue party, will now offer bank loan guarantees totaling 400 billion euros and will provide up to 100 billion euros of capital to banks.
• As for the US, the Treasury today will provide more details on its $700 billion TARP program to buy bad mortgage securities from banks. The market is also waiting for the Treasury's plan to buy preferred stock in US banks, thus boosting banks' Tier 1 capital.
• In a positive sign that the massive central bank liquidity and government guarantees are starting to gain traction, the 3-month dollar Libor rate today fell by 7 bp to 4.75% from 4.82% last Friday. The 3-month Euribor rate fell 6 bp to 5.32% from 5.38% last Friday. The 1-week Euribor rate fell sharply by 26 bp to 4.37%

Overnight U.S. Stock News

• December S&Ps this morning are trading sharply higher by +41.40 points on hopes that the US and European governments may have finally hit on the right combination of measures to contain the credit crisis. The US stock market last Friday ended lower except for the Nasdaq which closed slightly higher (Dow -1.49%, S&P 500 -1.18%, Nasdaq Composite +0.27%). The S&P 500 Index and the Dow Industrials both fell to 5-1/2 year lows last Friday.
• Bearish factors for stock prices last Friday included (1) continued concern about the fall-out for the US economy from the credit crisis, (2) the 8% drop in the S&P 500 Energy Index for a 2-day total loss of 19% as crude oil prices collapsed to 13-month lows on fears the wekening economy will hurt demand, (3) the 22% plunge in Morgan Stanley to a 12-year low and the 12% fall in Goldman Sachs after both firms had their credit outlooks cut to negative by Moody's Investors Service, (4) the continued freeze in the short-term lending markets as the dollar Libor rate rose to its highest level this year, (5) Standard & Poor's threat to cut the state of Californa's debt rating if it could not secure $4 billion in funding in order to pay its monthly bills, and (6) declining Q3 earnings expectations which one week ago were expected to fall -5.6% and now are forecasted to decline -7.5%.
• Bullish factors for stock prices last Friday included (1) the late rally in financials after the International Swaps and Derivatives Association said after an auction of insurance on Lehman Brothers debt that it had "little or no" unanticipated costs and the auction did not cause any firms to fail, and (2) the action by US stock exchanges in seeking to impose a temporary short sale ban on for three days on stocks that close down 20% or more

Today's U.S. Market Focus

• December 10-year T-notes this morning are trading -24 ticks on this morning's sharp rally in global stocks. December T-note prices last Friday ended the abbreviated session little changed and up +0.5 tick. Bearish factors for T-note prices last Friday included (1) concern that the Treasury will take further action to shore up the crumbling financial system, driving borrowing needs higher in order to fund all of their rescue programs, and (2) the settlement of credit default swaps on Lehman without any failures among participants. Bullish factors for T-note prices last Friday included (1) the larger-than-expected decline in the Sep import price index (-3.0% m/m versus expectations of -2.8%), (2) Standard & Poor's assertion the state of California's credit rating may be cut if it isn't able to borrow $4 billion it needs to pay monthly bills, and (3) flight-to-safety as the stock market plunged to 5-1/2 year lows in early trading.
• The euro is sharply higher against the dollar this morning by +2.11 cents on the aggressive European action plan agreed to by European leaders on Sunday and on the coordinated central bank plan to offer unlimited dollars to UK and European banks for up to 3 months terms. The dollar/yen is down -0.52 yen this morning as dollar weakness against the euro spilled over into the dollar/yen. The dollar index last Friday surged to a 16-month high and closed sharply higher. Bullish factors for the dollar last Friday included (1) continued hoarding of dollar on the early plunge in the stock market and as the markets had their doubts about the outcome of Friday's G7 meeting, and (2) the plunge in the British pound to a 4-3/4 year low and the euro to a 18-1/2 month low against the dollar after Royal Bank of Scotland Group recommended selling the euro and the pound becasue interest rates in Europe and the UK will fall faster than in the US. Bearish factors for the dollar last Friday included (1) the rally in the yen to a 6-3/4 month high against the dollar as equity markets worldwide crashed and caused investors to abandon the yen carry trade, and (2) worries about the eventual impact of the massive dollar liquidity that the Fed has been injecting into the global financial system.

• November crude oil prices this morning are trading +$3.55 a barrel and November gasoline is trading +7.58 cents a gallon on ideas that the worst of the credit crisis may now be over and on this morning's weakness in the dollar. November crude oil prices collapsed last Friday and closed -$8.89 a barrel at a 13-month low and November gasoline closed -22.03 cents a gallon at a 19-1/2 month low. Bearish factors for crude oil prices last Friday included (1) concern that energy demand will falter asa the deepening financial crisis pushes the global economy into recession, (2) the surge in the dollar index to a 16-month high,(3) the action by the IEA in lowering its 2009 global demand forecast by 440,000 bpd to 87.2 million bpd, citing a weaker economic outlook from the IMF, and (4) the prediction by Sanford C. Bernstein that OPEC divisions could "tear the organization apart" as Saudi Arabia pursues a more moderate course than other members who are calling for supply cuts to revive oil prices.

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 $0.25 per share), GWW-WW Grainger (1.53), FAST-Fastenal (0.50), MHK-Mohawk Industries (1.14)

Global Financial Calendar