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Overnight Global News

• The European DJ Stoxx 50 this morning is trading +1.23%. Deutsche Bank today rallied 9% after reporting a surprise Q3 profit today of 435 million euros. Emerging stock markets received support today from yesterday's news that the Fed opened $120 billion in new currency swap lines with Brazil, Mexico, South Korea and Singapore, to provide dollar liquidity to banks in those countries. South Korea's stock market rallied 12% today and the South Korean won rallied 14%. Russian's Micex stock market index today rallied 13%. Asian and Pacific stocks today closed sharply higher: Japan +9.96%, Hong Kong +12.82%, China +2.38%, Taiwan +6.29%, Australia +4.04%, Singapore +7.82%.
• Claims Today's weekly initial unemployment claims report is expected to show a small decline of 3,000 to 475,000, reversing part of last week's +15,000 increase to 478,000. Weekly continuing claims are expected to rise +15,000 to 3.750 million, more than reversing last week's small decline of 6,000 to 3.720 million. Initial claims are currently just below the recent 7-year high and continuing claims are just below their recent 5-year high. The US labor market is likely to weaken substantially over the next several months as businesses cut their employee head counts to prepare for a potentially steep and long recession. The US unemployment rate is currently at a 5-year high of 6.1%, but is likely to easily exceed the peak of 6.4% seen in the last slump in 2000-03 and perhaps the previous peak of 7.8% seen in 1992.
• GDP Today's Q3 GDP is expected to show a small decline of 0.5% (q/q annualized) following the respectable report of +2.8% (q/q annualized) seen in Q2. Meanwhile, Q3 personal consumption is expected to show a fairly large decline of 2.4% after the +1.2% increase seen in Q2. The Q3 GDP price index is expected to be high at +4.0% following the Q2 report of +1.1%. Today's Q3 GDP report is expected to be the first negative quarter in what is likely to be a string of negative reports that lasts into 2009. The convulsions seen in the global financial system starting in the middle of September will reach full-force in Q4 as businesses cut back on business activity and as consumers cut back on spending. The visibility on the economy is currently almost completely opaque and forecasters have little certainty about their GDP forecasts for 2009 at this point.
• 5-year T-note auction � The Treasury today will sell $24 billion in 5-year T-notes. The size of today's auction is unchanged from the last 5-year auction in September, but is nearly double the $13 billion size seen during 2007. The 12-auction averages for the 5-year are as follows: 2.18 bid cover ratio, $92 million in non-competitive bids, 4.78 bp tail to the median yield, 11.33 bp tail to the low yield, 57% taken at the high yield. Foreign central banks have shown sub-par interest in the 5-year T-note auction. Indirect bidders, a category mainly comprised by foreign central banks, have taken an average of 25.4% of the last twelve 5-year auctions, which is well below the average of 32.4% across all recent Treasury coupon auctions

Overnight U.S. Stock News

• December S&Ps this morning are trading sharply higher by +29.90 points (+3.23%) of relief that the Asian stock markets reacted positively to the Fed's actions yesterday to cut the funds rate by 50 bp and to provide $120 billion in swap lines to four emerging countries (which suggested that more swap lines are likely on the way). The US stock market yesterday whipsawed higher and lower several times throughout the day in a volatile session that left the market mixed on the day (Dow -0.82%, S&P 500 -1.11%, Nasdaq Composite +0.47%).
• Bullish factors for stock prices yesterday included (1) the action by the Fed in cutting the funds rate 50 bp in an attempt to jumpstart the economy, (2) the +4.6% jump in Apple after the prediction from Sanford C. Bernstein that a "significant" share repurchase by Apple may boost the company's earnings, (3) the continued thaw in interbank lending rates as the dollar Libor rate fell for the 13th straight day to a 1-month low, (4) the plan proposed by the Treasury and the FDIC that would offer economic incentives to the mortgage industry to modify more loans and help borrowers avert foreclosure, and (5) the 2.3% advance in the S&P 500 Energy Index, adding to Tuesday's 12% surge, as crude oil prices rallied almost +$5.00 a barrel.
• Bearish factors for stock prices yesterday included (1) the gloomy post-FOMC meeting statement that said "downside risks to growth remain" and that economic activity has "slowed markedly" along with the possibility that recent financial market turmoil may slow spending further, (2) the -5.8% drop in Intel after Bank of America said it expects sales in the semiconductor industry to fall 5% next year as economic growth falters, (3) the -8.1% decline in Aetna after the 3rd largest US health insurer reduced its earnings forecast for the year and said Q3 profit fell 44% on investment losses tied to the financial crisis, and (4) the -4% fall in Johnson & Johnson after JPMorgan Chase cut the stock to "neutral" from "overweight" saying 2009 will be a "tough year" as two of the company's three largest drugs face stiff generic competition.
• Motorola said this morning that it longer sees separating the company in Q3-2009. Motorola reported Q3 EPS ex-items from continuing operations at 5 cents per share, which was better than the market consensus of 2 cents. However, the overall Q3 EPS report showed an 18-cent loss after losing sales to Samsung and Nokia.
• Colgate reported Q3 EPS ex-items today of 99 cents, which was slightly better than the market consensus of 98 cents

Today's U.S. Market Focus

• December 10-year T-notes this morning are trading -14 ticks due to strong S&Ps and the sharp rally in many overseas stock markets today. December T-note prices yesterday traded on either side of unchanged until the FOMC announcement when they whipsawed lower and closed -9.5 ticks at a 1-week low. Bearish factors for T-note prices yesterday included (1) the better-than-expected Sep durable goods orders (+0.8% and -1.1% ex transportation versus expectations of -1.0% and -1.5% ex transportation), (2) the plan proposed by the Treasury and the FDIC to provide at least $500 billion in government guarantees for troubled mortgages that would offer economic incentives to the mortgage industry to modify more loans and help borrowers avert foreclosure, and (3) supply pressures ahead of today's $24 billion 5-year T-note auction. Bullish factors for T-note prices yesterday included (1) the action by the Fed in lowering the funds rate by 50 bp as expected to 1.00% and its comment that economic actvity has slowed markedly" as "downside risks to growth remain" with the financial market turmoil possibly slowing spending further, raising expectations for additional rate cuts, and (2) expectations that today's US Q3 GDP will shrink by the most since 2001, highlighting the poor outlook for the US economy.
• The dollar/yen this morning is up +1.37 yen on the sharp rallies in emerging markets, which encourages the yen carry trade. However, the dollar is sharply lower against the euro, with the euro up +1.80 cents, on the Fed's rate cut and new currency swap arrangements, which have reduced the flight to dollars. The dollar index yesterday succumbed to profit-taking pressures after its recent run-up to 2-1/2 year highs and closed sharply lower. Bearish factors for the dollar yesterday included (1) the 50 bp cut in the funds rate by the Fed, worsening dollar interest rate differentials, (2) comments from Germany's Chancellor Merkel that Germany will announce "bold" measures to bolster its economy, and (3) a continued thaw in interbank lending rates as the 3-month dollar Libor rate fell 5 bp for the 13th consecutive decline to a 1-month low of 3.42%. Bullish factors for the dollar yesterday included (1) the stronger-than-expected US Sep durable goods orders report, and (2) a report from the Japanese newspaper Nikkei that the Bank of Japan is "leaning toward" reducing its target rate by 25 bp to 0.25% when it meets this Friday.

• December crude oil prices this morning are trading +79 cents a barrel and December gasoline is trading +2.01 cents a gallon. Bullish factors this morning include today's sharp sell-off in the dollar and the sharp rally in Asian stock markets, which is a proxy for improved sentiment on global economic growth and thus fuel demand. December crude oil prices yesterday rallied sharply and closed +$4.77 a barrel and December gasoline closed +9.65 cents a gallon. Bullish factors for crude oil prices yesterday included (1) the sharp sell-off in the dollar, (2) comments from Venezuela's Oil Minister that OPEC will "probably" cut crude output quotas a second time to avoid a growth in inventories, (3) speculation that continued interest rate cuts by global central banks may help revive fuel demand, and (4) the smaller-than-expected increase in crude oil inventories and the unexpected decrease in gasoline stockpiles in yesterday's weekly DOE inventory report (crude oil +493,000 bbl versus expectations of +1.55 million bbl and gasoline -1.51 million bbl versus expectations of +900,000 bbl). A bearish factor for crude oil prices yesterday was the larger-than-expected increase in distillate inventories in yesterday's inventory report (+2.33 million bbl versus expectations of +1.0 million bbl).

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): XOM-Exxon Mobil (BEST earnings consensus $2.40 per share), CVS-CVS Caremark (0.59), CL-Colgate-Palmolive (0.98), APA-Apache (3.75), D-Dominion Resources (0.90), MRO-MArathon Oil (2.35), WMI-Waste Management (0.61), MOT-Motorola (0.01), ESRX-Express Script (0.78), AVP-Avon Products (0.53), CHK-Chesapeake Energy (0.89), PGN-Progress Energy (1.23), SWN-Southwestern Energy (0.41), EQR-Equity Residential (0.15), ERTS-Electronic Arts (-0.06), LMDIA-Liberty Media (0.25), IP-International Paper (0.79), CI-Cigna (1.06), CBS-CBS (0.41), UNM-Unum Group (0.63), ABC-AmerisourceBergen Corp. (0.70), BMC-BMC Software (0.51), NRG-NRG Energy (0.77), ICE-IntercontinentalExchange (1.04), IRM-Iron Mountain (0.20), WYNN-Wynn Resorts (0.63)

Global Financial Calendar