The Dow Jones is Bear-ing down on the 6,500 level, as a bout of merger mania (Merck’s(NYSE:MRK) proposed $41.1 billion takeover of arch rival Schering-Plough (SGP)) fails to bring out the buyers. Stocks ended a yo-yo session on the back foot. Weighing on the market were heavyweight comments from the former Sage of Omaha Warren Buffett (NYSE:BRK.A) that the current environment was akin to an “economic Pearl Harbor” while Dr. Doom, Prof Nouriel Roubini chimed in with his view that the US recession (depression) could last another three years.
The only bright spark was the fact that financials held in ahead of helicopter Ben Bernanke’s meeting with President Obama today and his speech on banking regulation. Note there are now six Dow stocks below $10 and volume is anemic. And all this in spite of news that Genentech (Private:DNA) are close to accepting a $95 bid from Roche (OTCQX:RHHBY) as it scores a sweetened deal. There are also reports that Dow (NYSE:DOW) and Rohm and Haas (ROH) are also near shaking hands - the judge is saying Dow will honour the agreement at $78 a share. All these are big ticket stories that in any other market would have ignited a bid.
Today’s Market Moving Stories
- The Nikkei closed at its lowest point in 26 years on overnight news of a Fitch rating agency report suggesting that the six leading banking groups in Japan have unrealised losses on stock holdings of over Yen 1trillion (no wonder people want to do away with that pesky transparency of mark-to-market accounting). Note that fiscal year end for Japan is the end of March, so we traditionally see some profit taking and repatriation for window dressing purposes at this time of year.
- Crude is on the rise ahead of OPEC meeting as traders eye the real prospect of more production cuts. It closed at the upper end of its 4 month range at $50.50.
- The always-readable Doug A. McInytre picks 5 tech stocks which may double by end 2010. And Nomura are spreading some cheer about 50 UK stocks which have quietly gained more than 10% this year.
- The EU has said “NON!” and given a firm thumbs down to Larry Summers' grand fiscal plan floated in the FT yesterday. German finance minister Peer Steinbruck said that the EU wanted to wait and see how the present stimulus package works. Jean-Claude Juncker said recent US proposals for additional stimulus spending were “not to our liking”. European finance ministers apparently believe that building up more debt would threaten the economic stability of the euro area. There is also a leaked paper doing the rounds, which EU finance ministers have agreed, according to which there will be no economic recovery even next year.
- Irish snippets. The Irish Independent is reporting CRH may have as much as €4bn in its war chest for acquisitions after its rights issue. With competitors under severe pressure financially, CRH (NYSE:CRH) could add 35c plus to its EPS over the next 18 months if it ramps up expenditure on “stressed asset” sales. Fyffes 2008 results were slightly ahead of forecast. They represent solid earnings in a very challenging environment. Guidance was inline with expectations.
- French Industrial production figures hot off the presses show it plummeting 3.1% MOM (versus a market consensus of –0.6%). An ugly number.
- It's reassuring in a topsey turvey world that some things don’t change.
- Would you trust these guys with YOUR money?
UK Economic News Not Looking Any Better
In UK news this morning, the RICS housing price balance and BRC retail sales monitor are adding to the GBP’s woes. The RICS showed the house price balance at -78, with transactions dropping to the lowest since the survey began thirty years ago. Meanwhile, the retail sales monitor showed spending up just 0.1% YoY in February versus 3.2% in January. UK Industrial Production data later this morning will add to the economic doom and gloom, showing a 8th consecutive monthly decline.
The latest lurch downward for the GBP owes little to weak data, which has now become the norm for UK markets, but rather renewed concerns over the banking sector as the government upped its stake in the Lloyds TSB (NYSE:LYG) group over the weekend. The quantitative easing (QE) policy announced last week, with the BoE buying gilts to boost the money supply is also impacting. On the whole, the impact of QE should be marginally positive. In the longer term it should boost liquidity and help rebuild confidence. In the short term however, the prospect of a wave of gilt buying is reducing yields - the 10 year gilt fell below 3% for the first time in decades yesterday, and adding to GBP’s woes.
Credit Markets Deteriorating Again
If the credit market is your bellwether of the crisis, then take cover because the indicators are deteriorating again rapidly. Europe’s iTraxx crossover index, an index of CDS on a basket of junk-rated corporate bonds, rose to a new record of 1170bp; the US CDX index, on a basket on 125 investment-grade corporate bonds, rose to 250bp. According to the FT, this deterioration reflects uncertainty about the state of the financial system and the possible bankruptcy of one or two US car makers. While most of the financial burden has been shared by the taxpayer and shareholders, there are now fears that bondholders will have to bleed as well. Problems are also building up in the money markets, after a period of improvement late last year. Libor hit a low of 1.08% in mid-January and is now back up to 1.31%. The renewed pressure in Libor is weighing on interest rate swap spreads, which reflects the credit quality of banks in the inter-dealer derivatives market. The two-year swap spread is back above 80bp. Recall my warning that March 18th represents a date for your diary as it’s the quarterly calendar roll for a whole host of derivative products. Rolling involves paying margin calls which must be funded and if money’s too tight to mention well then we may see another spectacular corporate failure.
And Finally… Tim Geithner Gone By June