U.S. Morning Call for Thursday, November 20, 2008
Nov 20, 2008

Overnight Global News

• The European DJ Stoxx 50 this morning is trading -3.00% as gloom continues over the economic and earnings outlook. USB is down 9% this morning and ING is down 7%. Oil companies are lower this morning on the $1.42 sell-off in oil prices with Royal Dutch Shell down 2.6%, Total down 3%, Chevron down 1%, and Schlumberger down 2.5%. Mining companies are lower on weak metals prices with Rio Tinto down 6%, BHP Billiton down 5%, and Schlumberger down 2.5%. Air France is down 6% this morning after the airline reported that fiscal Q2 earnings fell 49% but said that it will produce positive operating income for the full fiscal year. Iceland received a $4.6 billion bailout loan from the IMF and four Nordic companies, which will help the country get back on its feet after its banking industry and currency collapsed. The Swiss central bank this morning unexpectedly cut its benchmark rate by 100 bp. Asia-Pacific stocks today plunged on the back of yesterday's sharp US stock market sell-off: Japan -6.89%, Hong Kong -4.04%, China -1.06%, Taiwai -4.53%, Australia -4.19%, Singapore -3.10%, South Korea -6.64%, Bombay -3.68%.
• Claims Today's weekly initial unemployment claims report is expected to show a decline of 11,000 to 505,000, adding to last week's decline of -32,000 to 516,000. Weekly continuing claims are expected to show a small increase of +3,000 to 3.900 million, adding to last week's surge of +65,000 to 3.897 million. Initial claims are currently near a 7-year high and continuing claims are at a 25-year high. Unemployment claims are likely to keep rising in the wake of the series of recent layoff announcements by large companies and layoffs by smaller companies that don't make announcements on the newswires. The labor data is likely to get much worse over the next few months as businesses shed employees to prepare for a potentially long and steep recession.
• Philadelphia Fed index Today's Nov Philadelphia Fed manufacturing index is expected to show a small upward rebound of +2.5 points to 35.0. However, that would only be a small upward correction after the index plunged by 41.3 points to 37.5 in October. Manufacturing executives in the Philadelphia area, like the rest of the country, were shocked by the credit crisis that emerged in September and October and Philadelphia Fed's manufacturing index in October plunged to an 18-year low. The US manufacturing sector is hurting, not only from the credit crisis and the US recession, but also from weaker overseas export demand and from the possibility that the US auto industry may implode within the next several months if there is no bailout from Washington.
• LEI Today's Oct leading indicators report is expected to show a decline of 0.6%, more than reversing the +0.3% increase seen in September. On a year-on year basis, the LEI in September fell to a 7-1/2 year low of 3.0% y/y. The LEI is likely to fall further in coming months to challenge the most recent troughs of 3.6% in 2001 and 3.7% seen in 1991. The largest year-on-year decline in the LEI occurred in 1974 with a decline of 14.7% y/y.

Overnight U.S. Stock News

• December S&Ps this morning are trading -10.10 points on lower global stocks and continued concern about the US economic and earnings outlook. The US stock market yesterday sold off throughout the day and finished the session sharply lower (Dow -5.07%, S&P 500 -6.12%, Nasdaq Composite -6.52%). The S&P 500 Index and the Nasdaq Composite Index both posted 5-1/2 year lows yesterday.
• Bearish factors for stock prices yesterday included (1) the lowest level of US housing starts and building permits in Oct since records began in 1959, (2) the minutes of the Oct 28-29 FOMC meeting in which policy makers predicted the US economy will contract through the middle of 2009 and cut their growth estimtes for this year and next, (3) the 12% tumble in the S&P 500 Financials Index to a 13-year low with all 84 companies in the index closing lower, (4) the prediction from JPMorgan Chase that analysts have lowered profit estimates for 48% of stocks they cover worldwide, the most in 15 years, and will likely downgrade even more as the economy slows, and (5) the 9.7% drop in General Motors to its lowest prices since the 1940s and the 25% plunge in Ford as US automakers continued to seek a government bailout, and (6) fears of deflation after Oct consumer prices had their biggest monthly decline (-1.0% m/m) since records began in 1947, increasing concern consumers will hold off purchases to get lower prices later.
• Bullish factors for stock prices yesterday included (1) the assertion from policy makers of the FOMC in their minutes from the Oct 28-29 meeting that they were prepared to "take whatever steps necessary to support the recovery," fueling speculation of additional Fed interest rate cuts, and (2) the drop in crude oil prices to a 21-3/4 month low and the continued sell-off in gasoline prices to a 3-3/4 year low.
• GE is up +0.3% in European trading this morning on news that it is in talks with several Asian sovereign wealth funds for a capital injection.

Today's U.S. Market Focus

• December 10-year T-notes this morning are trading +17 ticks on weak global stock markets. December T-note prices yesterday rallied up to a contract high and closed +25 ticks. Bullish factors for T-note prices yesterday included (1) the biggest monthly decline in consumer prices since records began in 1947 (Oct CPI -1.0% m/m versus expectations of -0.8% m/m) with the +3.7% y/y rise a 1-year low and below expectations of +4.0% y/y, (2) the first decline in the core CPI in 26 years (Oct CPI ex food and energy -0.1% m/m versus expectations of +0.1%) with the +2.2% y/y increase a 13-month low and below estimates of +2.4% y/y, (3) the plunge in Oct housing starts and building permits to their lowest levels since records began in 1959 (Oct housing starts -4.5% to 791,000 and Oct building permits -12,0% to 708,000), (4) a continued lessening of inflation expectations as the yield between 10-year TIPS and conventional 10-year T-notes fell to 48 bp, a 10-year low, and (5) the minutes from the Oct 28-29 FOMC meeting in which policy makers lowered their 2008 and 2009 growth and inflation estimates and hinted at further rate cuts as the downside risks to growth had increased.
• The dollar this morning is lower with the dollar/yen down -0.12 yen and the euro/dollar up +0.43 cents. The dollar index yesterday ended the day little changed. Bullish factors for the dollar yesterday included (1) the prediction from Bank of Tokyo-Mitsubishi that the dollar will strengthen to $1.18 per euro in the next 6 months as global risk aversion causes massive inflows into the dollar, and (2) comments from ECB Council member Ordonez that he forecasts an "enormous" drop in Euro-Zone inflation, increasing the chances of further ECB interest rate cuts. Bearish factors for the dollar yesterday included (1) the plunge in US housing starts and building permits in Oct to their lowest levels since records began in 1959, highlighting the continued depression in the US housing market, and (2) the minutes from the Oct 28-29 FOMC meeting in which policy makers cut their growth and inflation forecasts for this year and next and hinted at further interest rate cuts to aid the slumping economy.
• December crude oil prices this morning are trading -$1.42 a barrel and December gasoline is trading -2.13 cents a gallon on today's sharp sell-off in global stocks. December crude oil prices sold-off to a 21-3/4 month low and closed -$0.77 a barrel and December gasoline closed -2.98 cents a gallon at a 3-3/4 year low. Bearish factors for crude oil prices yesterday included (1) a larger-than-expected increase in crude oil inventories in yesterday's DOE inventory report (+1.6 million bbl versus expectations of +1.0 million bbl), (2) the prediction from Deutsche Bank that oil prices may fall as low as $40 a barrel as demand collapses and production costs ease, and (3) weakening energy demand as US fuel demand dropped 5.2% in the first 20 months of this year, the biggest drop since 1981, according to the API. Bullish factors for crude oil prices yesterday included (1) the prediction from the National Weather Service that temperatures in the eastern US will be below normal through Dec 2, increasing energy demand, (2) comments from OPEC President Khelil that OPEC would like crude prices near $85 a barrel, and (3) the unexpected decline in distillate inventories in yesterday's DOE inventory report (-1.47 million bbl versus expectations of a +600,000 bbl build)

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): DELL-Dell (BEST earnings consensus $0.33 per share), GPS-The Gap (0.34), ADSK-Autodesk (0.54), GME-Gamestop (0.37), CRM-Salesforce.com (0.14), HP-Helmerich & Payn (1.18), PDCO-Patterson Companies (0.46), EV-Eaton Vance (0.34), FL-Foot Locker (0.26), BRCD-Brocade Communications Systems (0.17), TDG-Transdigm Group (0.75), BRC-Brady Corp (0.66), DKS-Dick's Sporting Goods (0.07)

Global Financial Calendar