A listless and lackluster market initially buoyed by the Chinese stimulus package succumbed and sank under the weight of more woeful news from corporate America (see below). When the average Joe the plumber investor on Main Street sees investment gurus and icons getting hosed on their recent equity buys, it hardly encourages him to put his hard earned money into a long position.
Today’s Market Moving Stories
- The London Times gives us more evidence that monetary policy in this credit crunch has been ineffective. They report that while the BoE base rate has been cut from 5% to 3% the average APR on credit cards has actually risen as banks tighten unsecured lending in anticipation of a big rise in defaults. The only place the rate cuts seem to be having an effect is on the currency with sterling weakening to a record low versus the euro yesterday.
- American Express got the Fed’s fast track permission to become a bank, gaining access to much needed funding as their credit losses mount.
- There are signs that the recent mini rest in emerging markets may be ending. With crude at $60 a barrel Russia clearly has a problem and rather than bleed currency reserves they seem to be letting the currency slide this morning. Overnight Chinese inflation fell more than expected to a 17 month low of 4% and Aussie NAB business confidence fell to a record low.
- The heads of the U.S. Department of Housing and Urban Development and the chief regulator for Fannie Mae (FNM) and Freddie Mac (FRE) are expected to announce fresh steps to widen Federal government support for home loans at a news conference later today.
- Dr. Doom, Professor Nouriel Roubini, a now resident CNBC talking head, is predicting another 20-25% off stocks.
UK Housing In for More Rough Months Ahead
Economic data out this morning from the UK is showing no signs of improvement. The BRC survey showed weak retail sales data, down 2.2% YOY. Also negative this morning was the RICS survey which showed UK home sales declined to their lowest level in more than 30 years. To compound all this, the Nationwide Building Society is saying that the British mortgage market will contract by 80% this year with prices set to continue falling for another year.
Gloomy stuff indeed reflected in the likes of homebuilder Taylor Wimpey who are down sharply this morning after reporting a 40% drop in orders.
Another Dismal Day For Corporate America
Here’s a quick rundown of what stocks were dragging US markets down yesterday:
- Record losses at AIG and Fannie Mae ($29bn).
- Rumours that Goldman Sachs (GS) is planning a right issue. Bet Warren Buffett is thrilled about that! He put his money down at $123, the stock is now $69. Barclays (BCS) also slashed their Q4 earnings estimates for them. Bit late lads.
- Hold the latte as we got disappointing results from Starbucks (SBUX).
- America’s second largest electronics retailer Circuit City (CC) filed for Chapter 11 protection.
- Mining giant Rio Tinto (RTP) cutting production on a Chinese slowdown.
- Deutsche Bank (DB) cutting their price target on GM’s (GM) stock to zero in anticipation of what seems like an inevitable bailout that they think will leave the common equity worth nothing. The stock duly finished the day at a 60 year low.
More companies disappointing since the US closed yesterday are:
- Vodafone (VOD): Cut their 2008 sales forecasts for the second time in 4 months.
- Citizen: Reported a big drop in wrist watch sales.
- Canon (CAJ): Worries of reduced demand from the key U.S. market (one can do without a new photocopier!).
On a quiet day, the German ZEW survey at 10.00 (consensus – 65) takes centre stage. This survey is a market mover in the Eurozone as it asks “experts” to evaluate the current economic situation and predict the future. Not that anyone is able to predict the future.