Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:51 AM ET
S&P 500: -18.00; 1,440.00
NASDAQ 100: -22.00; 1,922.50
Dow: -141.00; 13,186.00
NIKKEI 225: -2.37%; 16,764.09 (-406.51)
HANG SENG: -2.88%; 21,792.71 (-646.65)
SHANGHAI SE COMPOSITE: -2.17%; 1,319.55 (-29.33)
BSE SENSEX 30: -1.54%; 14,868.25 (-231.90)
FTSE 100: -3.24%; 6,068.20 (-203.00)
CAC 40: -2.62%; 5,477.65 (-147.13)
XETRA-DAX: -1.75%; 7,323.32 (-130.27)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -1.49%; $70.52 (-$1.07)
Gold: -0.34%; $670.50 (-$2.30)
Natural Gas: -1.62%; $6.48 (-$0.11)
Silver: -0.51%; $12.64 (-$0.065)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Countrywide Financial Plummets On 'Unprecedented Disruptions' In Secondary Mortgage Market
Number one U.S. mortgage provider Countrywide Financial Corp. said Thursday night that "unprecedented disruptions" in the secondary-mortgage market have forced it to retain a greater proportion of the mortgage loans it originates. Its shares were down 17.1% in pre-market trading as of 8:00 a.m. ET. In a 10-Q filed with the SEC Thursday, Countrywide warned its inability to sell mortgages to secondary parties "could have an adverse impact on our future earnings and financial condition." The company plans to retain more loans until demand for secondary mortgage purchases improves. In its recent quarter, Countrywide reported a 33% drop in net profits and slashed its forecasts going forward (full story). The fact Countrywide will have to retain more loans will create another strain on already overstretched liquidity for new mortgages in the U.S., and the company will have to restructure the way it makes profits from a largely fees-based model to an interest-based one. For a second day, U.S. futures were negatively affected by liquidity concerns, with the DJIA down 190 points (1.43%) and the S&P down 21 points (1.45%) as of 8:00 a.m. ET. In related news, Countrywide CEO Angelo R. Mozilo exercised options for 92,000 shares of common stock under what he claimed to be a "prearranged trading plan." Wednesday, Mozilo exercised the options for a purchase price of $14.69 a share and sold them all later that day for $28.74 apiece.
Sources: CFC's 10-Q, Bloomberg, MarketWatch, Reuters, AP
Commentary: Countrywide Experiencing 'Unprecedented Disruptions' • Countrywide Still Looking For Biznas • Countrywide Financial Posts 33% Net Income Drop; Slashes Guidance
Stocks/ETFs to watch: CFC. Competitors: BAC, WFC
Conference call transcripts: Countrywide Financial Q2 2007 Earnings Call Transcript
Fed May Drop Rates Within Next Week -- Merrill Lynch
The U.S. Federal Reserve may be forced to perform an emergency inter-meeting rate cut within the next week, according to Merrill Lynch analyst Joseph B. Shatz. Shatz told clients in a Thursday note Fed Funds futures point to a significant possibility that the Fed will drop its target rate from a current 5.25% due to a spat of recent concerns over global liquidity, including a move by the European Central Bank to inject €151 billion into European money markets over the past two days.
Commentary: Central Banks Scramble to Calm Anxious Markets • S&P Ratings Downplays European Fallout • Bush, Paulson Shrug Off Market Turmoil
Stocks/ETFs to watch: DIA, SPY, AGG, EFA
Deutsche Bank Says Asset-Backed Fund Down 30%, But No Exposure to Subprime
Ordinary shares of Deutsche Bank are trading further to the downside in the afternoon session in Frankfurt, -5.7% to €93.00 ($128), on news one of its investment funds has dropped 30% in value since the end of July. A DB spokeswoman said the fund doesn't have any investments in U.S. subprime related debt. However, DB's DWS ABS (asset-backed securities) fund -- now worth €2.1 billion ($2.9B) -- has been hurt by fallout from the subprime induced liquidity crunch (see full summary), pushing asset values broadly lower and forcing some investors to withdraw funds. DB said the fund remains open and it currently has no plans to limit redemptions. On Thursday, BNP Paribas said it had frozen redemptions on three asset-backed securities funds, each with investments in U.S. subprime debt, citing a "complete evaporation of liquidity in certain market segments of the US securitisation market ... (see full summary)." Shares of Deutsche Bank trading on the NYSE lost 5.6% to $133.45 on Thursday.
Sources: Bloomberg, Euro2day
Commentary: Global Markets Under Pressure as BNP Parabis Suspends Withdrawals at Three Funds • BNP Paribas Is the Canary In the Coal Mine • CDOs: Waiting for the Next Shoes to Drop
Stocks/ETFs to watch: DB. ETFs: EWG
ABN Amro Plunges on Rumors Buyout May Fall Through
Shares in Dutch bank ABN Amro plunged up to 11% Friday, and were down 5% at noon in Amsterdam, after the Dutch daily Het Financieele Dagblad reported Fortis is having problems financing its €24 billion stake in the deal to buy ABN, with partners Royal Bank of Scotland and Santander. There was also speculation Barclays may withdraw its bid. The RBS consortium's mostly-cash offer of €71B ($97.83B) is financially superior to Barclays' €65.4B stock-and-cash offer. On July 30, ABN Amro withdrew its recommendation of the Barclays bid and is now 'neutral' (full summary). Current market conditions could jeopardize the deal, Oriel analyst Mike Trippitt told Bloomberg. "If you believe the market, the current share prices are telling you the deal isn't going to happen." The concerned parties denied anything was amiss. A spokesman for ABN Amro said Friday there are "no new developments" in the buyout process, and a Fortis spokeswoman said its financing is secure. "We can choose the right moment for every type of transaction" related to the acquisition. Fortis shareholders approved the bid earlier this week, and backed a €13 billion rights offer to finance its portion. Fortis CFO Gilbert Mittler told reporters on Thursday it had a €10 billion bridge loan to allow it to sell assets at appropriate moments, and that Fortis wants to securitize about €2 billion in assets, but that "Aug. 9 was not the most appropriate moment" for doing so. ABN Amro's ADR's are down 7.3% in pre-market trading on the NYSE.
Sources: Bloomberg, Reuters
Commentary: ABN AMRO: Subtle Valuations In Takeover Battle • 17 Ways to Invest in The Netherlands
Stocks/ETFs to watch: ABN, BCS, FORSY, RBSPY.PK
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
In a classic case of foreshadowing, yesterday started off badly with French banking group BNP Paribas suspending three funds with exposure to U.S. credit markets, after it said the current turmoil in the sector prohibited accurate valuation of those funds. Dow component American International Group (NYSE:AIG) fell 3.3%, stating that residential mortgage problems are getting worse, and the Bank of Canada and the European Central Bank allocated billion of dollars and euros to help market liquidity.
Further, Goldman Sachs (NYSE:GS) and Black Mesa Capital said they sold many of their positions. Amid numerous reports of global liquidations stemming from what began as a limited subprime problem, investors ran for the exits. The strong rally that ended Wednesday's session was all but forgotten as the "Wall Street Roller Coaster" became "The Whip," and the Dow Industrials suffered their second-worst day of 2007.
At the bell, the Dow Jones Industrial Average closed at 13,271, down 387 points (2.83%). The S&P 500 lost 44 points (2.96%) at 1,453, and the Nasdaq fell by 56 (2.16%) to 2,556. Volume on the NYSE was high, with 2.8 billion shares trading, and at the Nasdaq, 3.5 billion shares were exchanged. Breadth was negative by 4/1 on the Big Board and 2/1 on the Nasdaq.
Crude oil (September contract) fell to $71.59, down 56 cents a barrel, and the Amex Energy SPDR (NYSEARCA:XLE) dropped $1.67 to $67.63. December gold prices lost 2% falling to $672.80, down $13.50. The Philadelphia Gold/Silver Index fell by $4.28 to $142.64, as it retreated into the broader consolidation that marked trading for the XAU for almost a year before breaking out in mid-July.
What the Markets Are Saying
Three successive days of buying ended yesterday with a new avalanche of frenzied selling and an end, at least temporarily, to the thrust up into the resistance at S&P 1,487.
The S&P closed yesterday at its low of the day and almost exactly on its 200-day moving average, with the next support at the Aug. 3 closing low of 1,433.
But there is some good news in all of this, at least from a contrarian viewpoint. Sentiment is now very negative with the 10-day put/call ratio at 1.26 (almost the March high). And the Investor's Intelligence poll has dropped more than 10 percentage points, its biggest decline in three years.
The Dow Industrials are still holding with support at 13,207 and, if the S&P can hold without breaking 1,433, it will have formed a double bottom. If not, look for a further decline to the support zone of 1,406 to 1,433 and to Dow 12,800. Some real estate investment trusts (REITs) and other solid financials were up yesterday, which indicates that we are probably close to a bottom and that savvy investors are ready to buy into quality.
Today's Trading Landscape
There are just a few earnings due today. Economic reports include the July import price index and the monthly budget statement. Today, the European Central Bank again injected liquidity into its system, in an effort to stave off a jump in interest rates as lenders worldwide are putting the kybosh on loans.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Slide Most Five Months as Credit Losses Widen; Banks Decline Asian stocks slumped the most in five months as a widening credit crunch hurt prices of Macquarie Bank Ltd., Toyota Motor Corp. (NYSE:TM) and Samsung Electronics Co.
• China's Trade Surplus Surges 67 Percent, Bolstering Case for Yuan Gains China's trade surplus surged 67 percent in July to the second-highest on record, bolstering U.S. Treasury Secretary Henry Paulson's case for a faster appreciation of the yuan.
• Bank of Japan Joins ECB, Fed in Giving Cash to Banks to Ease Credit Crunch The Bank of Japan added 1 trillion yen ($8.49 billion) to the financial system, joining central banks in the U.S. and Europe in supplying cash to assuage a credit crunch.
• India's Industrial Production Grew in June at Slowest Pace in Eight Months India's industrial production grew in June at the slowest pace in eight months, below all estimates, as interest rates at a five-year high curbed consumer spending.
• PetroChina's Value May Approach Exxon's After Shanghai Share Sale Approved PetroChina Co. (NYSE:PTR) shareholders approved a $5.6 billion Shanghai stock sale, agreeing to a plan that will enable China's largest oil producer to close in on Exxon Mobil Corp. (NYSE:XOM) as the world's biggest company by market value.
European Headlines (via Bloomberg.com)
• Stocks Fall Worldwide, U.S. Futures Drop; ABN, Toyota, Countrywide Decline Stocks declined worldwide and U.S. index futures retreated as concern increased that a widening credit crunch may hurt economic growth and earnings.
• Investors Trim Bets That ECB, Bank of England Will Increase Interest Rates Investors reduced bets on interest rate increases by the European Central Bank and the Bank of England after a credit crunch forced central banks to provide emergency cash.