Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:02 AM ET
S&P 500: -12.00; 1,463.50
NASDAQ 100: -17.25; 2,088.25
Dow: -102; 13,160
NIKKEI 225: -1.19%; 15,583.42 (-188.15)
HANG SENG: +0.08%; 28,783.41 (+23.19)
SHANGHAI SE COMPOSITE: -0.27%; 5,315.54 (-14.48)
BSE SENSEX 30: +0.04%; 19,066.96 (+8.03)
FTSE 100: -0.86%; 6,326.90 (-55.00)
CAC 40: -1.15%; 5,566.89 (-64.74)
XETRA-DAX: +0.29%; 7,841.79 (+22.32)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.54%; $94.94 (-$0.52)
Gold: -0.70%; $831.60 (-$5.90)
Natural Gas: +1.01%; $7.79 (+$0.08)
Silver: -2.09%; $15.19 (-$0.325)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Wachovia Lower on Plummeting CDOs, Warning of Q4 Loan Loss Provisions
Wachovia was last down 3.6% to $38.85 in pre-market trading, following the company's SEC regulatory filing detailing the value of its collateralized debt obligations [CDOs] fell by $1.1 billion (to now total $676M) in October and warned that it expects Q4 loan loss provisions of $500M to $600M. Wachovia says the CDO losses in October will require a writedown of $1.11/share, compared to a $0.35/share writedown in Q3. (See Q3 earnings summary). The loan loss provisions are in excess of charge-offs. Wachovia cited "anticipated loan growth and the impact of continuing credit deterioration in our loan portfolio." In its SEC filing, Wachovia described the current market as "extraordinarily volatile." Wachovia's $2.1B subprime residential mortgage-backed securities [RMBS] portfolio value was unchanged. However, Wachovia said the subprime RMBS and asset-backed CDOs markets have experienced "further deterioration" since the company reported Q3 earnings on Oct. 19. Shares of Wachovia lost 0.3% to $40.30 on Thursday.
Commentary: Thursday's Options Report: XLF, Wachovia, Citi, BID, Gap, Cisco • Financial Sector Credit Default Swaps Surge on Writedown Fears • Financial Sector Now Officially in Bear Mode
Stocks to watch: WB. Competitors: C, BAC, JPM. ETFs: KBE, XLF, IYF
Earnings call transcript: Wachovia Q3 2007 Earnings Call Transcript
Related: Wachovia SEC Form 8-K [pdf]
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
The "boo bears" were out in full strength yesterday morning and hit the market with some heavy selling that continued until mid-afternoon.
The reason for the pounding was that tech stocks seemed pretty shallow considering the excellent quarterly report that Cisco (NASDAQ:CSCO) offered. The strength in the past quarter apparently didn't satisfy those who needed convincing that the good news would continue for the blue-chip tech stocks. With the techs extended, it just seemed like a good idea to nail down some profits.
But the second piece of bear food was meaty, and it came from Fed Chairman Ben Bernanke who, in testimony before Congress, warned that the subprime write-offs could be north of $150 billion and said there were risks to the economy given the resulting slower business and consumer spending.
By mid-afternoon, the Dow was down more than 150 points and looked like it might go even lower following news that the retailers had the worst October in 12 years.
But at about 2:30 p.m. Eastern, bargain hunters began pecking away at the financial sector, and some of the retailers like Target (NYSE:TGT) said that October really wasn't all that bad. TGT said that same-store sales climbed 4.1% last month topping an expected 2.5%. Costco Wholesale (NASDAQ:COST) reported a 9% jump in same-store sales.
At the close most, of the losses, other than those in the technology sector were erased and the broader averages closed only slightly lower.
After the closing bell rang, the Dow Industrials were off 34 points at 13,266. The S&P 500 was off a fraction closing at 1,475, and the Nasdaq was off 53 points at 2,696. Volume on the Big Board topped 2.1 billion shares and the Nasdaq traded 3.5 billion shares. Breadth was slightly negative on both exchanges.
The December crude oil contract fell 91 cents yesterday, closing at $95.46 a barrel, and the Amex Energy SPDR (NYSEARCA:XLE) gained $1.30 to close at $75.85. Gold was sharply highly with the December contract up $4 at a new closing high of $837.50, and the Philadelphia Gold/Silver Index [XAU] gained 91 cents and closed at $189.44.
What the Markets Are Saying
The S&P 500 has held above 1,490 since early in September, but after heavy selling in the financial sector on Wednesday, and again on Thursday, the index finally cracked its support line.
Volume picked up to 1.8 billion shares on the NYSE on Wednesday and accelerated to 2.1 billion on Thursday as a new wave of stories circulated of even more huge write-offs from key lenders.
From a technician's view, it is amazing that 1,490 hasn't cracked before now. Even after Wednesday's breakdown, the expected morning-after follow-through ended with a rally that almost put the S&P into the black yesterday and recovered over 25 points of S&P losses. Does that mean that the worst is over?
Probably not, since some real technical damage has been done, and if another series of deep write-offs occurs, we could have an 8%-10% sell-off.
However, the support zone of 1,430 to 1,490 is strong and unless there is another major surprise from the fragile financial sector, it will more than likely hold. Sentiment turned from wildly bullish at the 1,555 area to a pessimistic 51% of the public now bearish compared to just 36% bullish -- a complete transposition of bulls versus bears in just three weeks! Many of the internal market indicators are now very oversold.
My estimate is that we will stabilize and get a short-lived rally before heading down again. The bull is not dead -- just wounded -- and he will take some time to heal. But sometime in January, I expect him to make another run at greener pastures north of his current location.
Asian Headlines (via Bloomberg.com)
Asian Stocks Fall; Mizuho Financial Declines on Report of Subprime Losses Asian stocks fell, sending a regional benchmark to its biggest weekly loss in almost three months, on speculation Mizuho Financial Group Inc. will delay a brokerage merger because of subprime-mortgage losses.
HSBC, Bank of China, Bank of East Asia Cut Hong Kong Loan, Savings Rates HSBC Holdings Plc and BOC Hong Kong (Holdings) Ltd. cut their lending rates in the city by a quarter point for a second time this month after the cost of funds fell to the lowest in more than two years.
Mizuho, Shinko Shares Slide After Report Merger Delayed by Subprime Losses Mizuho Financial Group Inc., Japan's second-largest bank, fell to a two-year low in Tokyo after Nikkei newspaper said a proposed takeover of Shinko Securities Co. may be delayed because of losses at Mizuho's investment banking unit.
China October Trade Surplus May Exceed $30 Billion, Stoking Trade Tensions China's monthly trade surplus probably topped $30 billion for the first time, adding fuel to U.S. complaints the yuan is undervalued.
Yuan Heads for Biggest Weekly Gain Since End of Peg After Paulson Speech The yuan had the biggest weekly advance against the dollar in two years, after U.S. Treasury Secretary Henry Paulson said China is ``out of step'' with the rest of the world's calls for faster appreciation.
European Headlines (via Bloomberg.com)
European Stocks Decline, Led by Nokia, Syngenta; Royal Bank, Barclays Drop European stocks fell as the dollar retreated to a record low against the euro and Wachovia Corp. of the U.S. said it expects to increase its allocation for loan losses.
EU Lowers Economic Growth Forecast for 2008, Sees Inflation Accelerating The European Commission cut its forecast for economic growth next year and said inflation may accelerate faster than previously anticipated as energy and food costs soar.
Allianz Profit Rises 21 Percent, Beating Estimates, on Sales of Insurance Allianz SE, Europe's biggest insurer, reported a 21 percent increase in third-quarter profit, exceeding analysts' estimates, as lower taxes and earnings from insurance cushioned losses at Dresdner Bank.
Julius Baer Plans to Sell U.S. Fund Unit to Public Next Year, People Say Julius Baer Holding Ltd., Switzerland's third-largest private bank, plans to sell its U.S. fund unit early next year in an initial public offering, according to two people with knowledge of the transaction.
ECB Might Fall Short of Inflation Goal for Another Two Years, Weber Says European Central Bank council member Axel Weber said there's a risk the bank will fail to meet its price-stability objective for another two years.
Securitas Profit Unexpectedly Declines on Writedown, Accounting-Probe Cost Securitas AB, the world's largest provider of security guards, reported an unexpected drop in third-quarter profit after an accounting probe at a U.K.-based cash-handling unit.