Preview from Europe: Bodies in the Citi-Morg

There is more than a whiff of October 2008 about the price action yesterday with Citibank (–17%) (C) and Bank of America (–12%) (BA) leading equities tumbling. Investors gave a clear thumbs down to the plan by Citi to sell its brokerage business to Morgan Stanley (MS) as it smelt like a desperate attempt to raise capital. Some wag called it Citi-Morg! Alcoa (AA) kicked off US earnings season and came in with numbers that missed with some style.

The Nikkei’s pronounced weakness overnight (-4.8%) is party due to them playing catch up as they were closed yesterday. Export driven manufacturers of electronic products (Sony (SNE) –8%, Canon (CAJ) –7.5% and Toshiba (TOSBF.PK) –8.3%) led the rout. Note Japan’s exports shrank a staggering 26.5% in November.

Today’s Market Moving Stories

• Helicopter Ben Bernanke speaks at the LSE today on the crisis, followed by what could be a lively Q&A session afterward. Meanwhile, President-elect Obama has said that his administration plans to limit dividends and executive pay for banks getting tax payers' bailout funds. What they really need to do is to stop big, weak banks using TARP funds to gobble up strong, small- and medium-sized institutions instead of lending money.
• Crude oil prices remain under severe pressure despite production cuts by OPEC and Israel remaining in Gaza. US Crude fell to $36.40 a barrel early this morning on demand destruction and inventory build up. This will keep energy stocks and mineral extractor stocks under pressure.
• Here are the full details on the German two year €50bn stimulus package.
• Elan (ELN) has hired Citigroup Global Markets to review the company’s strategic alternatives, which may include a merger or sale of the drugmaker. Other options under consideration include a minority investment or a strategic alliance. The stock surged as much as 15%.
• Tesco (TSCDY.PK) bucked the trend with some strong Christmas sales numbers.
• Sony will likely suffer an operating loss of about 100bn yen due to sluggish sales and a stronger currency. The Nikkei business daily also carries a report saying that the loss could double. Other local news reports are forecasting first time losses for Sanyo (SANYY.PK) and Toshiba while the Chairman of Canon told Reuters that the company’s year-end sales were “disappointing”.

More Catastrophic Data From The UK
The BRIC retail sales survey shows, as expected, the high street had a very poor Christmas season with a huge 3.3% drop in like for like sales last month, with total sales slumping 1.4% year-on-year. These are the biggest declines in the 14 year history of the series, though it does not go back far enough to encompass the last recession.

The BCC quarterly economic survey showed the biggest fall in both services and manufacturing indices since the series began in 1989, and reported “a frightening deterioration in the UK economic situation” in Q4.

The RICS house price balance edged up from -76 to -73, though the number of transactions continued to fall from 10.6 to 10.1 per agency, the lowest in the 30 year history of the series.

Another Downgrade For A Eurozone Member
Spain is the latest Euro-sovereign to be put on ‘creditwatch negative’ by rating agency Standard and Poor’s following Greece last week. Ireland’s credit rating was put on the less severe ‘negative outlook’ status. Italy, despite being less dependent on the housing market, could be next to be downgraded, maybe by Moody’s. Austria is also under pressure given their strong economic links with weak CEA nations such as Hungary and the Ukraine. These needy governments will find that borrowing is now even more difficult and costly.

The disadvantage for Euro-sovereigns during this crisis is the ECB’s inability to print money and attempt to reflate its way out of the current difficulty, which differs from the UK and US. Eurozone countries also crucially lack their own currencies and what is becoming apparent is the loss of competitiveness of some Eurozone members. The upshot is more pressure on the euro versus the dollar and yen ahead of the ECB’s expected 0.50% rate cut Thursday 12.45 GMT.

And Finally… BankAid Is Here

Disclosures: None

Comments

[monday1929:]

Why would Elan, or anybody, use Citi for "strategic advice"??????
Their unceasing criminal acts, and worse, incompetence, should make them unwelcome everywhere.

Jan 14 11:23 AM