Stocks fell for the second straight day. The market opened heavy and traded like that all day. There was no one thing causing this, but comments from famed sages George Soros (that the rally was pretty much done) and Marc Faber (the S&P 500 could drop as much as 10% to around 750) certainly added to the fall. Energy stocks were the big losers, as oil fell below $50. Natural gas hit a 6-year low, while tech shares were also noticeably weak on economic fears hurting orders/sales. After the bell there were weak earnings from Alcoa (NYSE:AA) and fertilizer maker Mosaic (NYSE:MOS) who may feel pressure today. Note, Asian stock markets saw an even sharper correction on big losses for Daiwa.
Market liquidity is dropping off in Europe from already low levels, and clearly this is unlikely to change this side of the Easter break.
Today’s Market Moving Stories
- The Fed’s Fisher, speaking in Tokyo, said that the US economic data is grim and that the Fed is duty bound to use every tool possible to clean up the mess in the financial system. Inflation was deemed unlikely to present a serious threat.
- US data overnight saw consumer credit fall $7.5bn against an expectation of a fall of $3bn. ABC consumer confidence moved down to -50 from -49.
- The Fed released preliminary February data for consumer credit, which doesn’t include mortgage debt and doesn’t make for pretty reading. Seems that the velocity of money is going to slow further, giving two fingers to helicopter Ben.
- UK Nationwide Consumer Confidence fell back down to 41 in March from 43, matching January’s record low. Meanwhile, the NIESR projects Q1 GDP contracted a further 1.5% qoq, pointing out that the path is similar to that which unfolded in the 1979 recession, where the contraction lasted for more than a year.
- It's official - life insurance companies are now eligible for TARP. It seems that the US taxpayer is going to be backstopping every bond buyer in the US. The latest bitter pill to swallow for Joe the Plumber is that the TARP will be extended to “certain eligible” life insurers. The report is very sketchy.
- Another mega merger in the pharma space with rumors that Novartis (NYSE:NVS) could be eying up a bid for Bayer at a modest 15% premium.
- The German government has decided to expand the car incentive scheme which gave such a boost to March sales to €5bn in total, allowing it to run to the end of the year and quelling any fears that the bonuses may be stopped earlier. This may slow the surge somewhat in April, following the 40% increase in sales in March, but a smoother sales profile would be advantageous in any case to car manufacturers. This should be a boon to the volume players, Volkswagen, Fiat and Peugeot who benefited so strongly in March.
- The Irish Competition Authority has opted to appeal to the Supreme Court a ruling in favor of Kerry’s purchase of Breeo Foods. Kerry already wrote off €20m of the proposed transaction in its 2008 accounts and adjusted down the purchase price to €140m. The deal bolsters its position in the Irish consumer food market at a time when demand is weakening. If the deal is aborted, the synergies available from a merger disappear but Kerry will pocket its purchase price and walk away from the €20m tab.
- The Glanbia-PJ Cussons nutrition business in Nigeria has moved into profit in the latest quarter, according to PJ Cussons in an IMS update.
- GM and Segway unveiled a new two-wheeled urban transportation device developed as a clearner alternative to traditional cars. Project P.U.M.A. (Personal Urban Mobility and Accessibility), which looks like passenger car of a rickshaw, is powered by a lithium ion battery and has a top speed of about 35 miles an hour.
- To paraphrase Prince, today we're gonna have a hangover like '1929'? Thomas Worsley, a 97-year old economist who worked in the Roosevelt administration, offers up some not-so-reassuring comparisons between now and then.
Can The Bear Market Rally Go Further?
There are three reasons to be hopeful:
- Everyone thinks this is a bear market bounce, and is basically uncommitted to the rally. Until higher prices are a consensus view, we won’t have enough longs to hurt and the shorts can be squeezed harder.
- The market expects a 36% yoy fall in earnings, which is a lot and enough to give some cover.
- The more important part of the earnings releases will be the financials in a few days' time and that part should be good. Banks have been rushing to tell us how good things have been in their dealing businesses. Huge corporate bond issuance, a pick-up in equity issuance, very steep front ends to yield curves, and central banks both selling and buying bonds create a dealer-friendly market. The results should reflect this, especially when quite a few assets became less rather than more distressed over Q1.
Irish Banks Bad Bank Scheme
As part of the budget announcement yesterday there was a brief introduction to the Irish bad bank scheme (to be called National Asset Management Agency NAMA). The State will buy €80-90bn of distressed mostly development loans and some property investment loans at a discount. According to Moody’s rating agency the banks will get government bonds or government guaranteed bonds in return. The price arrangements critically have not been disclosed, or indeed decided. We do know that any divestiture of the loans that leads to a loss will be made good by the government but this support will be subject to an imposed levy. Certainly, the launch was lacking in detail but it looks like a lot more work is needed.
Pernod Ricard On The Road To Recovery
Excellent news from Pernod this morning that they will be launching €1bn rights issue and a $575m disposal of the Wild Turkey bourbon brand to Campari. The Wild Turkey sale means nearly 60% of the Group’s €1bn target from its non strategic asset disposals announced in July 2008 has been achieved. The rights issue, which will be supported by the Ricard family, and disposal proceeds, will be used to strengthen the balance sheet and resolve the majority of its refinancing needs until 2013.
Another positive was the disclosure that only 38% of the likely 2009 dividend will be paid in cash, with the remainder paid in shares. Slightly less good was the news that greater than expected destocking from wholesalers and distributors will reduce Q3 sales, and mean operating profit from recurring operations will be up between +3% and +5%, rather than the previous guidance of +5% to +8%. Nevertheless, predominantly positive news.
The levels of debt and refinancing issues have been key factors. Now, this obstacle has been reduced. It is too early for a rating upgrade, but spreads should be significantly tighter.
Data And Earnings Today
German factory orders for February are released at 11:00 (all times are GMT). Orders should drop 4%, which is more than double the consensus, although less disastrous than recent falls.
US FOMC minutes are out tonight at 19:00. The main focus will be on what drove the Fed to start buying Treasuries.
And Finally… Another Bailout Song