Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:30 AM ET
S&P 500: +12.50; 1,452.70
NASDAQ 100: +22.00; 2,011.50
Dow: +80; 13,070
NIKKEI 225: -0.46%; 15,126.63 (-70.46)
HANG SENG: +0.50%; 27,803.35 (+137.62)
SHANGHAI SE COMPOSITE: -0.57%; 5,158.12 (-29.62)
BSE SENSEX 30: +1.59%; 19,035.48 (+298.21)
FTSE 100: -0.10%; 6,331.50 (-6.40)
CAC 40: -0.20%; 5,524.72 (-10.84)
XETRA-DAX: -0.51%; 7,766.71 (-40.13)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.97%; $93.70 (-$0.92)
Gold: +1.21%; $805.10 (+$9.60)
Natural Gas: +0.93%; $8.04 (+$0.07)
Silver: -0.39%; $14.705 (-$0.057)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
China Inflation Matches Decade High; Trade Surplus Widens
Inflation in China increased 6.5% y/y in October, matching a ten-year high set this past August. Surging food prices were once again a factor (accounting for 1/3 of the CPI), but a growing concern is the broader impact on other segments such as energy, labor and assets, says a Hong Kong-based DBS Bank senior economist, who claims, "Everyone in China is feeling inflation, especially the poor." After another bank reserve requirement hike, to 13.5% over the weekend, further lending and deposit rate hikes are seen as inevitable. China's Q3 GDP came in at a robust 11.5%, but unrest is growing, especially as pork and other food prices continue to climb double-digits. Non-food item price increases were unchanged sequentially at 1.1%, but Beijing has already raised fuel prices this month as crude oil surged towards $100 per barrel. Beijing's inflation target is 3.0%, but it expects inflation of 4.5% this year, with a reading of 4.4% through October. Meanwhile, China's October trade surplus rose 13.6% to a monthly record $27B, with the year-to-date surplus of $212.4B already exceeding the full-year 2006 total of $177.5B. A Hong Kong-based Macquarie economist commenting on the surplus says, "Money supply is growing very fast and that is worrying because it may push inflation higher." Import growth outpaced exports, 25.5% to $80.7B vs. 22.3% to $107.7B. China's surplus with the U.S. rose 12% to $15.7B and is on pace to break last year's record surplus of $232.5B. The Shanghai Composite fell for a fourth-straight session, losing 0.6% to 5,158.12, and is off more than 15% since its peak mid-October.
Commentary: A Bubbly China - Barron's • Morgan Stanley China: Don't Let Panic Selling Scare You • Double Down On This China Fall
Stocks to watch: FXI, PGJ, CAF
Credit Crisis May Prove Windfall for Berkshire - WSJ
Recent bond-market turmoil has major upside potential Warren Buffett's Berkshire Hathaway, as bond insurers like MBIA Inc. turn to the massive insurer for a source of capital relief while their books are scrutinized by investors and ratings firms, the Wall Street Journal reports. Over the past few weeks, sources say, every major bond insurer has reached out to Berkshire. Their dialogue, among other things, affords Buffett the opportunity to size up various firms' operations. Besides municipal bonds, which are the bulk of insurers' portfolios, they also collectively insure some $100 billion of riskier CDOs (collateralized debt obligations), which have recently become the subject of ratings downgrades. More recently, rating agencies have begun re-evaluating bond insurers to gauge whether they have sufficient capital to weather worse-than-expected claims. The need for contingent capital and a dry-up in debt markets has them turning to Berkshire -- the only AAA-rated reinsurer in the world. Buffett, the Wall Street Journal says, has been betting investors are overestimating the risks of certain investments. While bond insurers need not reinsure CDOs specifically to tune-up their portfolios, the Journal says it is likely Buffett wouldn't avoid reinsuring some highly-mispriced CDO portfolios at a hefty premium. Berkshire recently disclosed $2.5 billion in premiums on the sale of derivative contracts, which could possibly include CDOs. Sources say it's unlikely Buffett would acquire a bond insurer, but say he may set up a financial guarantor that takes advantage of excessive prices.
Commentary: What Went Wrong in the CDO Market • CDO Hedge Funds = Enron ? • How Does a CDO Work?
Stocks to watch: BRK.A, MBI
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• Watch and leather goods maker Fossil Inc. (NASDAQ:FOSL) saw its Q3 net income rise nearly 42% to $30.5 million (EPS of $0.43), vs. net income of $21.5 million (EPS of $0.31) a year ago. Analysts were looking for EPS of $0.34 on average. Sales rose 19.6% to $358.6 million. Same store sales increased 5.9%. Looking ahead, the company expects Q4 EPS of $0.67, with net sales rising 13% to 15%. Fossil forecast FY adjusted EPS of $1.79; the Street had been expecting EPS of just $1.58 on that basis. The board announced it would repurchase up to two million of the company's shares. Shares were up 9.12% in pre-market trading on the news (as of 8:06 AM ET). (source: Reuters)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
With the bond market on holiday yesterday, bargain hunters opened the stock market on a strong note -- driving up the Dow to a 100-point gain by noon Eastern. Most of the gains stemmed from a bounce by financial stocks, which was due to an agreement among the three largest U.S. banks on the structure of a $75-billion fund to support distressed securities.
But despite the agreement and gains by the big banks, investors were spooked that E*Trade Financial (NASDAQ:ETFC) announced further write-downs, and Citigroup (NYSE:C) downgraded the trading firm to a "sell" with a comment that E*Trade could possibly be forced to file for bankruptcy. Merrill Lynch's (MERD) downgrade of Microsoft (NASDAQ:MSFT) to "neutral" from a "buy" also took down the technology stocks, and the market closed on the negative side.
At the close, the Dow Industrials were off 55 points at 12,988. The S&P 500 dropped 15 points to 1,439, and the Nasdaq lost 44 points to 2,584.
The Nasdaq was off 1.67% yesterday, which was almost four times the percentage decline of the Dow. Volume on the Big Board was 1.7 billion shares and 2.8 billion shares traded on the Nasdaq. Breadth was almost a negative 2-to-1 on both exchanges.
Futures markets were broadly lower yesterday with crude oil (the December contract) down $1.70 and gold (the December contract) off a whopping $27 to finish at $807.70 per troy ounce.
The Amex Energy SPDR (NYSEARCA:XLE) fell $3.10 to $71.44, and the Philadelphia Gold/Silver Index [XAU] lost $14.60 to close at $172.14. Both the XLE and the XAU appear to have completed reversals, with the XLE falling from a diamond formation with a target close to its present 200-day moving average at about $67. The XAU could find support at September's breakout point at $160.
What the Markets Are Saying
Some are saying that yesterday's rally by the financial sector looked like a reversal for that oversold group, and perhaps it was. But the technical condition of the broader market doesn't yet show a tendency to reverse, and the NYSE Composite (NYA, the broadest of all the indexes) was off 163 points yesterday -- slicing through both its 200-day moving average and its intermediate bullish support line. The S&P 500 (the other broader index) closed on the low of the day just a little over nine points from the closing low of Aug. 15.
The sentiment numbers and the internal indicators are very oversold but they could become even more oversold if stocks slice through the August closing lows. It is time to be very cautious.
Today's Trading Landscape
Today, the October Treasury Budget will be released at 2 p.m. Eastern.
Earnings are expected from the following companies: Acme Communications, Coleman Cable, Eddie Bauer, Fossil, Genpact, Iam Gold, La-Z-Boy, Nash Finch, Quadramed, TJX, Vodafone and Vivendi, as well as many others.
Yesterday the U.S. dollar showed the first real strength against the euro in a long time -- currency observers will be watching today to see if there is any follow-though to yesterday's buying. Two Dow-component retailers reported earnings this morning: Wal-Mart (NYSE:WMT) beat earnings estimates by 3 cents, and Home Depot (NYSE:HD) met estimates but said that the slow housing market will have a negative impact on future earnings.
Asian Headlines (via Bloomberg.com)
Japan's Economy Rebounded in Third Quarter on Exports, Capital Spending Japan's economy grew faster than economists forecast in the third quarter as an unexpected increase in consumer spending countered a drop in housing construction.
China's Inflation Accelerates to Decade High of 6.5 Percent on Food Prices Inflation in China, the world's fastest-growing major economy, accelerated in October as food prices jumped, increasing pressure on the central bank to raise interest rates for a sixth time this year.
Shinsei First-Half Profit Falls 40 Percent on Provisions on Subprime Loans Shinsei Bank Ltd., the worst- performing Japanese bank stock, said first-half profit plunged 40 percent, a steeper decline than it reported three weeks ago, after setting aside more provisions linked to U.S. home loans.
Macquarie Predicts Slower Profit Growth After Record First-Half Earnings Macquarie Group Ltd., Australia's biggest securities firm, said a rally in equity markets may falter in the second half, making it harder to repeat its record 45 percent profit growth of the first six months.
Taiwan Semiconductor to Buy Back $1.5 Billion of Stock as Philips Divests Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, said its board approved a plan to buy back and cancel up to $1.5 billion of its own shares.
European Headlines (via Bloomberg.com)
European Stocks Fall; Total, Shell, Anglo American, Rio, Porsche Decline European stocks fell to the lowest in almost two months, paced by commodity producers, on speculation slowing economic growth will sap demand.
German ZEW Investor Confidence Index Drops to Lowest in Almost 15 Years German investor confidence dropped to the lowest in almost 15 years in November after the euro reached a record and the price of oil neared $100 a barrel.
U.K. Inflation Rate Rose More Than Forecast in October, Topping BOE Target Britain's inflation rate unexpectedly rose above the Bank of England's 2 percent target to a four-month high in October, suggesting higher interest rates have yet to wring price pressures out of the economy.
Securitas Direct Gets $1.5 Billion Takeover Offer From Swedish Investors Securitas Direct AB, the Swedish maker of burglar alarms spun off from Securitas AB last year, got a 9.6 billion kronor ($1.5 billion) takeover bid from an investment group that said the company is better off unlisted.
E.ON Reports Third-Quarter Profit After Year-Earlier Loss on Power Prices E.ON AG, Germany's largest utility, reported a profit in the third quarter after a year-earlier loss as it earned more from power sales at home and in Britain.