Market direction uncertain as futures oscillate. U.S. stock futures are up but have today oscillated between positive and negative, causing uncertainty as to what shares will do following yesterday's free fall. However, if Europe is anything to go by, stocks are set to continue their declines over the session. After hitting positive territory in some cases early on, EU stocks were firmly in the red in midday trading. Asian shares had a relatively mixed time, with Hong Kong closing -5.7%, but Japan finishing just -1.7% and China ending flat.
Safe havens mixed. With European shares falling, gold and the Swiss franc have continued to play their roles as safe havens. Gold rose to yet another fresh high of $1,778.30 an ounce, putting it in line for its biggest three-day rally since the depth of the financial crisis in late 2008. The Swiss franc also hit further records, reaching 1.0475 to the euro and 0.7359 to the dollar. However, the price of Treasurys, which attracted such a stampede yesterday despite the S&P downgrade, eased off and yields rose.
S&P just added to the bad news. It may have been the catalyst for yesterday's global stock rout, but the S&P downgrade just added to the relentless stream of bad news, from EU debt to U.S. growth. The DJIA sank 5.55% for its biggest percentage drop since December 2008 and its sixth-largest point decline ever. The Nasdaq closed -6.9% and the S&P 500 -6.63%, and every stock on the index ended lower. Financials were slaughtered, with Bank of America (NYSE:BAC) -20%.
Eyes of the world on the Fed. The FOMC is due to meet today amid calls for the Fed to take action over slowing growth, especially after yesterday's stock plunge. However, with interest rates at zero to 0.25% for nearly three years and $2.3T of bond buying not spurring growth, there doesn't appear to be a huge amount the Fed can do. One option would be to replace shorter-term securities with longer maturities to reduce rates on longer-term debt. And if the Fed is considering QE3, it's not expected to announce it today.
Senate panel probing S&P ratings cut. The Democrat-led Senate Banking Committee has reportedly started collecting information on S&P's decision to downgrade the U.S., although no decision will be made on whether the panel will hold hearings. The committee's chairman, Tim Johnson, has already called S&P's move "irresponsible." Separately, Jay Carney said he's not aware of any administration conversations to impose tougher regulation on the ratings agencies.
China inflation growth poses dilemma for central bank. China inflation rose 6.5% in July, beating forecasts and hitting its highest level in three years. The jump was once again largely fueled by soaring food prices and puts the People's Bank of China in a dilemma, as its steady tightening over the past few months has slowed production but not kept CPI in check. The high inflation shows China is still dealing with the after-effects of huge monetary expansion during the financial crisis and so may have little room for further stimulus.
HSBC in talks to sell U.S. card ops. HSBC (HBC) has confirmed it's in talks to sell its U.S. credit card and retail services business following a report yesterday that Capital One (NYSE:COF) is in negotiations to buy the U.K. bank's $30B U.S. credit-card portfolio. However, HSBC didn't comment on whether Capital One is involved in the discussions.
Transatlantic rejects Berkshire Hathaway's $3.25B bid. Reinsurer Transatlantic Holdings (NYSE:TRH) has turned down a $3.25B offer from Berkshire Hathaway (NYSE:BRK.A) unit National Indemnity, saying the proposal is not superior to an agreed bid from Allied World Assurance (NYSE:AWH), which is worth $2.75B. However, Transatlantic will enter negotiations with Indemnity as it believes such talks would lead to a "superior proposal." Transatlantic has also received an unsolicited offer from Validus Holdings (NYSE:VR) that is worth $2.89B. Transatlantic's shares rose 6.8% yesterday despite the market chaos.
Talks continue as Verizon strike heats up. Verizon Communications (NYSE:VZ) has been continuing "high level discussions" with unions while 45,000 workers strike after formal talks were halted on Sunday. Verizon yesterday said it had repaired over 12 acts of sabotage since the strike began and accused picketing workers of illegally blocking access to numerous company work centers. As of yesterday, the impact of the strike had been minimal, but the question for Verizon is how long it can operate with replacement workers before its business starts to suffer.
Education Management accused of illegally receiving $11B. The Justice Department and four states have sued Education Management Corp. (NASDAQ:EDMC) for illegally receiving over $11B in student aid - nearly all the company's revenue since 2003 - after using improper recruitment practices. Education Management is accused of paying recruiters based on the number of students they signed up in breach of a law for colleges that get government assistance. Education Management, which is 41% owned by Goldman Sachs (NYSE:GS), denies the allegations.
Freddie Mac's Q2 loss halves. Freddie Mac's (OTCQB:FMCC) Q2 loss more than halved to $2.1B from $4.7B a year earlier, the mortgage firm said on Monday, the same day S&P downgraded its long-term credit rating and that of Fannie Mae (OTCQB:FNMA) to AA+ from AAA. During the quarter, Freddie paid a dividend of $1.6B to the government and asked for $1.5B in new aid. So far, the net cost to the taxpayer of Freddie's bailout is $52B.
Barclays makes U.K. threat. Barclays (NYSE:BCS) CEO Bob Diamond has made a veiled warning to the U.K. government over plans to make banks build a wall around their core high-street operations, indicating that his company could move its headquarters elsewhere. "It’s no longer a question of whether Barclays wants to stay in the U.K. but whether the U.K. wants Barclays," Diamond said. However, analysts have been skeptical that banks would actually be able to relocate.
In Asia, Japan -1.7% to 8944. Hong Kong -5.7% to 19331. China flat at 2526. India -0.8% to 16858.
In Europe, at midday, London -1.1%. Paris -0.3%. Frankfurt -2.4%.
Futures at 7:00: Dow +1%. S&P +1.3%. Nasdaq +1.1%. Crude -2.2% to $79.50. Gold +3.4% to $1770.70.
Tuesday's economic calendar:
7:30 NFIB Small Business Optimism Index
7:45 ICSC Retail Store Sales
8:30 Productivity and Costs
8:55 Redbook Chain Store Sales
10:00 IBD/TIPP Economic Optimism
1:00 PM Results of $32B, 3-Year Note Auction
2:15 PM FOMC Announcement
Earnings Results: Companies that beat EPS expectations last night and today include Live Nation, MGM Resorts (shares -2.6%), CareFusion. Those that missed forecasts include AOL, DISH, Brookdale Senior Living Assured Guaranty, Take-Two Interactive (-5.6%) Click here for details.