- Market madness. Despite global best efforts and a brief relief rally, markets resumed their downside bias as bank rescues fail to avert fears of a global recession. In the U.S., the Dow and the S&P 500 had their worst day on Wednesday since the 1987 stock market crash, while Nasdaq erased all its gains from Monday's rally. Stock-index futures pulled back, signalling the S&P 500 is poised to continue its extended drop. In Asia, the Nikkei fell more than 11% this morning, its biggest one-day drop since 1987, while Hong Kong shares were down almost 9%. In Europe, London's FTSE lost 7.2% yesterday and European markets opened sharply lower this morning.
- UBS gets rescued. UBS (UBS) was forced to accept a $60B bailout from the Swiss government after it accumulated the largest losses from the credit crisis of any European lender. It will receive a capital injection of $5.2B from the government to set up a fund for up to $60B in toxic debt which will be supported by the central bank. Regulators said the move will help UBS meet tighter capital requirements and reduce risky assets on the bank's balance sheet, and will give the government around a 9% stake in UBS. The government is also planning to raise deposit guarantees for Swiss banks and to back short-term and medium-term interbank liabilities.
- Grim view from the Fed. The Federal Reserve's Bernanke described a gloomy outlook for the U.S. economy, saying frozen credit markets pose a 'significant threat' and warning it will take time before they begin to thaw and even longer before markets start to return to normal. He also said inflation risks were lessening, suggesting the possibility of a Fed rate cut. St. Louis Fed's James Bullard noted September's sharp drop in retail sales (see below) increased the risks of recession.
- Europe still trying for liquidity. The European Central Bank continued its efforts to thaw frozen credit markets, announcing it will accept lower-rated securities as collateral when lending to banks and will offer unlimited euro funds over the next six months. The ECB will also lend up to $6.7B to the Hungarian central bank to help revive the local credit market, despite the fact that Hungary is not part of the 15-nation Eurozone. The Swiss central bank will conduct currency swaps with the ECB, and the Bank of England will announce changes to its market operations this morning. Trying to learn from current mistakes, Eurozone leaders are set to call for international boards to oversee the world's 30 largest banks and financial institutions.
- Banks complain about U.K. rescue. The shine is beginning to come off the U.K.'s $700B bailout plan, originally held up as a model for other European countries seeking to address the financial crisis. Banks are complaining the conditions are too harsh, especially compared to the U.S. bailout, as the price the government will charge to guarantee their debt is so high that in some cases it totals more than the banks earn on their loans. Those fees could reduce earnings by 10-15%. U.K. banks taking government funding (including RBS, LYG) aren't allowed to pay dividends to shareholders until the government's preferred shares have been bought back, a process that could take years and will make their shares less attractive than similar U.S. banks. Treasury Chief Alistair Darling said the plan was structured to protect taxpayers. He left room open for negotiations, but added, "if someone comes along with a better deal or banks want to raise more money from private investors, that's fine."
- BP mulls new acquisition. Oil giant BP (BP) is considering a deal to buy natural-gas properties from Chesapeake Energy (CHK), potentially signalling cash-rich global oil companies are getting ready to go shopping as smaller firms face falling energy prices and financing difficulties. It's unclear whether BP would be willing to pay around what the properties were valued at before the credit crisis and a double-digit drop in gas prices, and whether Chesapeake would be willing to accept less. BP's balance sheet is strong, with $3.6B in cash and short-term liquid investments at the end of June, and the company is under pressure to expand its energy portfolio as previous growth strategies show signs of weakness.
- EDF backs off bid. Electricite de France dropped its $6.24B offer for Constellation Energy (CEG), citing financing difficulties due to the credit crisis, but said the U.S. remains one of its four target countries for international nuclear development. EDF owns 10% of Constellation, which is on track to move forward with the $4.7B bid from MidAmerican Energy, a unit of Warren Buffett's Berkshire Hathaway (BRK.A).
- Surprise! The economy stinks. The Fed's latest Beige Book (text) confirmed the obvious: a weak U.S. economy and rampant pessimism. All 12 districts in the Fed's every-six-weeks survey reported weaker economic activity in September, due mainly to decreased consumer spending and a lack of available credit. Retail, auto and tourism were among the sectors hardest hit. Several districts said consumers reduced outlays on discretionary and big-ticket items.
- Retail sales. Retail Sales fell 1.2% in September, far worse than the 0.7% economists expected, and the biggest one-month drop in three years. It was also the third straight monthly decline, the first time on record that's happened.
- Mortgage apps. Mortgage applications rose 5.1% from a week ago, MBA says. The average interest rate on 30-year fixed-rate mortgages increased to 6.47% from 5.99%.
- NY's Mfg index. New York State's Empire Manufacturing survey fell to -24.6 in October from -7.4 in September, vs. an expected -10.5. The survey is now at its lowest level since it was started in 2001.
- September PPI. The September Producer Price Index fell 0.4%, in-line with consensus. Core PPI rose 0.4% vs. 0.2% consensus. Year-over-year PPI stands at 8.7% and core PPI is 4.0%.
Earnings: Thursday Before Open
- Bank of New York Mellon (BK): Q3 EPS of $0.79 beats by $0.13. "In the face of unprecedented market volatility our operating performance exceeded expectations," it says. (PR)
- Citigroup (C): Q3 EPS of -$0.60 beats by $0.10. Revenue of $16.68B (-22.9%) vs. $19.62B. Headcount's down by 23,000 YTD. U.S. retail and corporate deposits were up 6% vs. Q2. Tier 1 Capital ratio of 8.2%. (PR)
- Continental (CAL): Q3 EPS of -$1.32 beats by $0.23. Revenue of $4.16B (+8.8%) in-line. Ends the quarter with $2.9B in unrestricted cash. (PR)
- Danaher (DHR): FQ3 EPS of $1.14 beats by $0.01. Revenue of $3.21B (+17.5%) in-line. (PR)
- Harley-Davidson (HOG): Q3 EPS of $0.71 misses by $0.08. Revenue of $1.42B (-7.7%) in-line. Says European sales were weaker than anticipated in September as a result of deteriorating economic conditions. (PR)
- Hershey Foods (HSY): Q3 EPS of $0.64 misses by $0.01. Revenue of $1.49B (+6.4%) in-line. (PR)
- Merrill Lynch (MER): Q3 EPS of -$5.56 misses by $0.44. Revenue of $16M vs. $760M. Takes $9.5B in writedowns on residential mortgage losses. Merrill's acquirer, Bank of America (BAC), missed last week. (PR)
- Nokia (NOK): Q3 EPS of €0.33 in-line. Revenue of €12.24B (-5.1%) vs. €12.86B. Units shipped 117.8M vs. 120M consensus. Expects industry mobile device volume to rise in Q4. Shares +6% pre-market. (PR)
- PNC Financial Services (PNC): Q3 EPS of $0.71 misses by $0.17. Revenue of $1.65B (-5.5%) vs. $1.82B. Estimated Tier 1 risk-based capital ratio of 8.2%. (PR
- UnitedHealth (UNH): FQ3 EPS of $0.73 in-line. Revenue of $20.16B (+7.9%) vs. $20.04B.(PR)
- United Technologies (UTX): Q3 EPS of $1.36 beats by $0.06. Revenue of $14.81B (+6.9%) vs. $15.12B. Order rates slowed. "In the face of ongoing economic challenges, we continue to aggressively reduce costs and restructure our businesses." (PR)
Earnings: Wednesday After Close
- eBay (EBAY): Q3 EPS of $0.45 beats by $0.04. Revenue of $2.12B (+12.1%) in-line. Sees Q4 EPS of $0.39-0.41 vs. $0.47, and revenue of $2.02-2.17B vs. $2.43B. (PR)
- Novellus Systems (NVLS): Q3 EPS of $0.01 misses by $0.03. Revenue of $250M (-36.4%) in-line. (PR)
- Polycom (PLCM): Q3 EPS of $0.37 beats by $0.02. Revenue of $276M (+14.9%) in-line. (PR)
- Spansion (SPSN): Q3 EPS of -$0.74 misses by $0.22. Revenue of $631M (+3.3%) vs. $619.5M. (PR)
- Xilinx (XLNX): FQ2 EPS of $0.38 beats by $0.01. Revenue of $483.5M (+8.7%) in-line. (PR)
- Asia markets closed broadly down. Nikkei -11.4% to 8,458. Hang Seng -4.8% to 15,231. Shanghai -4.2% to 1,910. BSE -2.1% to 10,581.
- In Europe: London -2.7%. Paris -3.5%. Frankfurt -2.2%.
- U.S. futures: Dow +0.7%. S&P +0.7%. Nasdaq +1.0%. Crude -2.7% to $72.52. Gold -0.1% to $838.40.
Thursday's Economic Calendar
- 8:30 Consumer Price Index
8:30 Jobless Claims
9:00 Treasury International Capital
9:15 Industrial Production
9:30 Fed's Bullard speaks on U.S. growth potential
10:00 Philadelphia Fed Survey
10:35 EIA Natural Gas Report
1:00 PM NAHB Housing Market Index
4:30 PM Money Supply
- Notable earnings before Thursday's open: AMB, APH, BAX, BBT, BGG, BK, C, CAL, CIT, CY, DHR, FCS, HBAN, HOG, HSY, ITW, LUV, MER, NOK, NUE, PH, PNC, PPG, RS, SHW, SPWRA, SWKS, TXT, UTX, WERN, WTNY
- Notable earnings after Thursday's close: AMD, COF, ESLR, GILD, GOOG, IBM, INFA, LEG, MTG, PMCS, SONC, SYK, TPX, ZION
Seeking Alpha editor Eli Hoffmann contributed to this post.
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