- BoJ cuts interest rates. In a split decision of five-against-four, and under pressure from the government, the Bank of Japan cut its benchmark interest rate to 0.3% from 0.5%. A former BoJ board member said the rate cut, the first in seven years, "will probably do little to prop up the economy" but BoJ probably didn't want to come across as overly rigid during the global financial crisis. BoJ also lowered its growth forecast for the year through March, dropping its estimate to 0.1% from a 1.2% prediction in July. The yen rose against the dollar and the euro after the rate cut announced was smaller than the expected 0.25% reduction.
- Germany torn between stimulus package, budget. The German government is working to craft a €25B ($32B) fiscal stimulus package, trying to balance the needs of a slowing economy with the government's efforts to balance its budget. The package will likely include job programs, support for the auto industry, infrastructure projects, and reintroduction of a generous corporate tax law, among other initiatives, but the government has not yet figured out how to finance the extra outlays. Some economists argue that income-tax cuts would be more effective in any case than a stimulus package that targets only specific sectors.
- U.K. bank goes Middle Eastern. Barclays (BCS) is close to finalizing a deal for a £6B ($9.8B) capital injection from Middle Eastern governments, including sovereign wealth funds in Qatar and Abu Dhabi. The move would help solidify the bank's balance sheets and save it from having to accept a bailout from the U.K. government. It would also surprise rival bankers skeptical of Barclays ability to raise £6.5B in fresh capital, as promised, without government support. If successful, this will be Barclays second round of Middle East fundraising in the space of six months. An announcement of the deal could be made as early as today.
- The Fed muscles into commercial paper. Outstanding commercial paper soared an unprecedented $100.5B (+6.9%) vs. a week ago to $1.55T (source) after the Fed began buying debt directly from issuers. "The introduction of the commercial paper program is an enormous jolt of not just liquidity but stimulus to the economy," Tom Sowanick, chief investment officer at Clearbrook Financial, said. Sellers included American Express (AXP) and GE (GE). Total sales of 80-day paper were $171B, vs $33.5 billion last week; of that, the Fed's new facility bought $145.7B. Net of Fed purchases, paper bought by the private sector was down $45B.
- Uncertain future for GM/Chrysler deal. Merger hopes between General Motors (GM) and Chrysler are beginning to crumble as the White House rebuffed a request for direct financial support of the deal, saying the Treasury is not negotiating the $10B GM had asked for. Sources close to the companies say this will postpone merger talks at least until after the U.S. presidential elections. This also opens the door for Cerberus Capital Management, which owns Chrysler, to restart talks with he Nissan-Renault alliance.
- GMAC wants to be a bank. GMAC confirmed it is in talks with federal regulators to become a bank holding company, giving it access to the Treasury's $250B bank recapitalization plan. Barely four months after completing a $60B refinancing package, the money-losing auto finance and mortgage provider said it will overhaul and slash its debt load. GMAC has lost $7.2B in the seven quarters ending June 30, and its credit ratings have spiralled into junk status. The lender is owned by Cerberus Capital Management and General Motors (GM), with a 51% stake and 49% stake respectively.
- Burning through cash. AIG (AIG) has been granted access to the Federal Reserve's new commercial-paper facility, allowing the troubled insurer to reduce its reliance on the costlier emergency loan the Fed had previously extended by $6.8B. AIG is eligible to borrow up to $20.9B under the new program, brining AIG's access to government money to a total of $144B through three different programs. AIG warns its cash needs could continue to grow if real estate prices decline further. Some analysts wonder how a company that claimed to be financially sound in September could need $140B-plus in October unless the shortfall was hidden all along by irregular accounting.
- White House balks at loan-guarantee price tag. The White House and Treasury Department are trying to scale back a proposal by FDIC's Sheila Bair to help limit foreclosures by guaranteeing mortgage loans. Bair's idea to guarantee modified loans could require as much as $50B from the $700B bailout package, and sources say the Bush administration is balking at the price tag. White House and Treasury officials are also concerned that Bair's proposal, which could help up to 3M homeowners though $500B of mortgage guarantees, would provide a windfall to banks that made bad loans. Democrats, meanwhile, are intensifying pressure on the administration to help more Main Street Americans keep their homes instead of bailing out Wall Street firms.
- Yahoogle may abandon ad deal. A proposed online advertising partnership between Yahoo (YHOO) and Google (GOOG) is looking increasingly unlikely due to regulatory concerns, and the two sides may walk away from the deal as early as next week. Company representatives met with the Department of Justice yesterday to discuss DoJ antitrust concerns. DoJ has suggested the companies sign a consent decree which would subject their compliance to the oversight of a judge. However, there are signs both companies are unwilling to make the necessary compromises to satisfy DoJ officials. Abandoning deal talks would be a major blow to both companies, especially for Yahoo which turned down a search deal with Microsoft (MSFT) in June when the Google deal was announced.
- No sale for Sprint's Nextel. Sprint Nextel (S) will hold onto its Nextel cellphone unit after failing to find a buyer and will renew a partnership with Motorola (MOT) to provide network support and mobile devices for Nextel. Sprint has lost millions of customers to competitors like AT&T (T) and Verizon Wireless (VOD, VZ) since it merged with Nextel in 2005 and has been looking for a buyer since the beginning of the year. Several firms expressed interest in the Nextel unit but were hard pressed in tight credit markets to raise the $5.4B+ in cash for a deal at the valuation Sprint would have liked.
- Motorola's new cellphone plan. Motorola announced plans for a radical restructuring, putting its original breakup plans on hold and laying out a new strategy for its troubled cellphone division. The new plans include 3,000 more job cuts and a freeze on the launch of many upcoming phones. Revenue at Motorola's cellphone division fell 31% in Q3 and the company has decided to cut costs and fix the division before spinning it off as originally planned. The delay means a further erosion of Motorola's market share, which has already dropped to less than 10% of global phones sales from 20% over the last two years.
- GDP down but not out. Real GDP fell -0.3% in Q3, better than economists' -0.5% consensus, according to advanced estimates. Last quarter it grew 2.8%. The largest contributors to the downturn were lower prices for nondurable goods and a deceleration in exports. While the GDP shrinkage was more modest than expected, things will likely get worse before they get better. "The crisis really kicked up in late September," economist Ethan Harris says. "We're going to be looking at a very unfriendly GDP number in Q4, with a drop of 2-4%."
- More mortgages underwater. Nearly 20% of U.S. homeowners owed more on their mortgages than their houses was worth in Q3. Over 7.5M properties have negative equity and 2.1M properties will follow suit if home prices drop another 5%. Six states, led by Nevada and Michigan, account for 60% of the underwater mortgages.
- Jobless claims hold steady. Initial Jobless Claims of 479,000 were unchanged from last week - and slightly higher than the 475K consensus. Continuing claims of 3.715M were lower than the 3.735M consensus. The 4-week moving average was 475,500, down by 5,000.
Earnings: Friday Before Open
- Advanced Medical Optics (EYE): Q3 EPS of $0.15 beats by $0.03. Revenue of $276M (+0.9%) vs. $275M. (PR)
- Aon (AOC): Q3 EPS of $0.69 beats by $0.06. Revenue of $1.8B (+5.6%) in-line. (PR)
- KBR Inc. (KBR): Q3 EPS of $0.44 beats by $0.01. Revenue of $3.0B (+38.6%) in-line. (PR)
- M.D.C. (MDC): Q3 EPS of -$2.55 misses by $1.45. Revenue of $361M (-47.4%) vs. $347M. (PR)
- NYSE Euronext (NYX): Q3 EPS of $0.72 in-line. Revenue of $1.2B (+16.5%) vs. $817M. (PR)
Earnings: Thursday After Close
- Akamai Technologies (AKAM): Q3 EPS of $0.40 beats by $0.01. Revenue of $197M (+22.4%) vs. $195M. Shares +12.3%. (PR)
- B&G Foods (BGS): Q3 EPS of $0.08 misses by $0.05. Revenue of $116.5M (-0.4%) in-line. (PR)
- BMC Software (BMC): FQ2 EPS of $0.56 beats by $0.05. Revenue of $467M (+11%) in-line. Shares +1.6%. (PR)
- Chesapeake Energy (CHK): Q3 EPS of $0.85 misses by $0.03. Production fell by 0.3% from last quarter, and by 15% vs. a year ago. Shares +4.2%. (PR)
- Chiquita (CQB): Q3 EPS of -$0.13 beats by $0.43. Revenue of $840M (+7%) vs. $830M. Shares -0.2%. (PR)
- Electronic Arts (ERTS): FQ2 EPS of -$0.06 in-line. Revenue of $1.13B (+20.3%) vs. $1.08B. "Considering the slowdown at retail we've seen in October, we are cautious in the short term." Shares -14.3%. (PR)
- Express Scripts (ESRX): Q3 EPS of $0.81 beats by $0.03. Revenue of $5.45B (+1.7%) vs. $4.65B. (PR)
- KLA-Tencor (KLAC): FQ1 EPS of $0.32 misses by $0.02. Revenue of $533M (-23.1%) vs. $518M. "Macro-economic uncertainty, declining consumer demand, and limited access to financing are having an adverse impact on semiconductor capital equipment spending across all end markets and geographies." Shares -2.8%. (PR)
- McAfee (MFE): Q3 EPS of $0.53 beats by $0.04. Revenue of $410M (+27.2%) vs. $395M. (PR)
- Monster Worldwide (MNST): Q3 EPS of $0.40 beats by $0.07. Revenue of $332M (+0.7%) vs. $337M. Shares +2.9%. (PR)
- Oceaneering International (OII): Q3 EPS of $0.99 beats by $0.03. Revenue of $516M (+6.3%) vs. $527M. (PR)
- ON Semiconductor (ONNN): Q3 EPS of $0.25 beats by $0.03. Revenue of $581M (+3.3%) in-line. Sees Q4 revenue of $500-550M vs. $573M. Shares +1.4%. (PR)
- Powerwave Technologies (PWAV): Q3 EPS of $0.08 beats by $0.03. Revenue of $238M (+18.5%) vs. $233M. Shares +1.7%. (PR)
- Southwestern Energy Company (SWN): Q3 EPS of $0.53 beats by $0.12. Revenue of $683M (+137.4%) vs. $572M. Shares +0.5%. (PR)
- Unum Group (UNM): Q3 EPS of $0.64 beats by $0.01. Revenue of $2.44B (-6.4%) vs. $2.66B. (PR)
- Varian Semi (VSEA): FQ4 EPS of $0.03 beats by $0.01. Revenue of $142M (-52.4%) vs. $135M. Sees FQ1 revenue of $115-125M vs. $136M. (PR)
- Wynn Resorts (WYNN): Q3 EPS of $0.62 beats by $0.04. Revenue of $769M vs. $754M. Shares +2.6%. (MW)
- Asia markets closed mostly down. Nikkei -5.0% to 8,577. Hang Seng -2.5% to 13,969. Shanghai -2.0% to 1,729. BSE +8.2% to 9.788.
- In Europe at midday, London -1.7%. Paris -1.6%. Frankfurt -0.7%.
- U.S. futures: Dow -1.6%. S&P -1.7%. Nasdaq -2.3%. Crude -3.4% to $63.75. Gold -0.9% to $731.90.
Friday's Economic Calendar
- 8:30 Employment Cost Index
8:30 Personal Income and Outlays
9:45 NAPM Chicago Business Barometer
10:00 University of Michigan Consumer Sentiment
2:00 PM Fed's Bernanke speaks on mortgage finance
3:00 PM Farm Prices
- Notable earnings before Friday's open: AEP, AIV, AOC, AXL, BKC, CDE, CLX, CMI, CVX, EYE, GG, KBR, MDC, MDU, NYX, PEG, PGN, WY
Seeking Alpha editor Eli Hoffmann contributed to this post.
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