- Stocks rose Thursday on investor relief that Countrywide Financial (CFC), the largest mortgage lender in the country, will likely be saved from bankruptcy as well as hopes that interest rate cuts will avert a recession. The DJIA, which closed up 0.92% at 12,853.09, has rallied 264 points over the past two days. The S&P 500 closed up 0.79% at 1,420.33, led by the financial sector: Washington Mutual (WM) gained almost 15%, Fannie Mae (FNM) 6% and Citigroup (C) over 2%. The Nasdaq closed up 0.56% at 2,488.52. The yield on 10-year Treasurys gained 2.37% to end the day at 3.89%. Oil fell $1.96 to close at $93.71 Thursday on consumer spending concerns, but rose to $94.49 in midday trading in Asia on Friday on rate cut optimism and an attack on six oil ships by Nigerian rebels. The dollar declined against the yen and the euro.
- Federal Reserve Chairman Ben S. Bernanke pledged "substantive additional action" to guard against downside risks to the economy, prompting HSBC Securities USA and Morgan Stanley (MS) to forecast a half-percentage-point reduction of the benchmark fed-funds rate this month.
- 70% of retailers reported December sales below expectations. Consumers appear to have bought fewer items over the holiday season, and what they did buy was less expensive than usual. The poor retail showing is contributing to concerns about a looming recession. Wal-Mart (WMT) and Costco (COST) exceeded expectations, but Limited (LTD), Ann Taylor (ANN) and Kohl's (KSS) all cut profit forecasts following poor December sales.
- A survey of 54 economists put the chance of recession at 42%, up from 38% in December and 23% six months ago.
- On the other hand, the Institute of International Finance forecast that the U.S. will avoid recession in 2008 and growth will rebound in H2.
- Initial jobless claims fell unexpectedly to 322,000 -- a two-month low -- during the week ended January 5, the Labor Department said Thursday. The holiday-shortened week is notoriously difficult for the government to assess, however, in view of seasonal variations. Economists were expecting a rise to 340,000 from 336,000 the week before.
- Asia: The Nikkei closed down 1.93% at 14,110.79 Thursday, its lowest close in over two years, after Merrill Lynch (MER) was reported to be facing more additional writedowns than expected. Mitsubishi UFJ Financial Group (MTU) led decliners in the financial sector with a 1.2% drop. Property shares also fell, with K.K. DaVinci Advisors dropping 11%. Japanese retailing giant Seven & I Holdings and department store operator J. Front Retailing suffered their worst one-day declines ever. Japan's market cap has shrunk 3.1% to $4.4 trillion since 2008 began, enabling China to surpass it as the world's second-largest stock market. In a sign that China's stratospheric expansion might have hit a top, the country's trade surplus narrowed for a second month on slowing export growth. The Hang Seng closed down 1.34%.
- Europe: The FTSE closed down 0.33%, the DAX up 0.12%, and the CAC down 0.15% on Thursday. Downgrades and subprime anxiety weighed down European stocks in early trading Friday, with Unilever (UL) sinking 6.3% and L'Oreal (OTCPK:LRLCY) 4.6%.
Must-Know News for Friday
- Merrill Lynch might face another $15 billion in writedowns. The New York Times reported Friday that the investment bank (MER) is expected to disclose the writedown -- which is almost twice its original estimate and greater than the $12 billion expected by analysts -- when it reports earnings next week.
- Countrywide buyout could saddle BofA with legal trouble. Shares of mortgage lender Countrywide Financial (CFC) surged 51.56% to close at $7.76 Thursday after news broke that it is about to be acquired by BofA (BAC) for over $4 billion. Countrywide is facing a host of lawsuits, however, for which its acquirer will have to assume at least partial responsibility.
- Infosys reports Q3 earnings beat. Infosys Technologies (INFY) posted a 25.2% rise in Q3 net, ahead of expectations, but said the global business environment remains "challenging."
- United Rentals forecasts earnings boost in 2008. The equipment rental company (URI) is projecting 2008 EPS at $2.80-3.00, up from $2.55-2.60 a share in 2007. Shares rose 6.6% on the news.
- Huntington Bancshares warns on Q4. The Midwestern regional bank (HBAN) said Thursday it is forecasting a Q4 loss of $239 million, sending its shares down 4.4%.
- Delta pursues merger with either Northwest or United. Delta Air Lines (DAL) will seek permission from its board on Friday to begin merger negotiations with Northwest Airlines (NWA) and United Airlines parent UAL Corp (UAUA). Delta ultimately plans to choose one or the other. Delta shares rose 18.2%, Northwest shares 32% and UAL shares 23.7%.
- Invitrogen to buy CellzDirect. The drug discovery company (IVGN) said Thursday it will purchase CellzDirect, which provides cell products and services used in drug testing, for $57 million.
- Wal-Mart's December comps surprise. Wal-Mart (WMT) posted a 2.4% rise in December same-store sales, exceeding expectations. The retailer added that while Q4 EPS from continuing operations should come in within its prior $0.99-1.03 forecast, earnings will be more pressured by high interest expense than they were a year ago.
- Even Amex cardholders are defaulting. American Express (AXP) said Thursday it will take a $440 million pretax charge against Q4 earnings to cover bad loans. Amex shares fell 12% before the Friday open.
- ConocoPhillips in lead for UAE gas project. The WSJ reported Thursday that ConocoPhillips (COP) is the front-runner to land a multibillion dollar project to develop sour gas reserves at the Shah Field in the UAE. Other contenders include Occidental Petroleum (OXY), Royal Dutch Shell (RDS), and Exxon Mobil (XOM).
- Blackstone buys GSO Capital Partners. The world-leading buyout firm (BX) has agreed to pay up to $930 million for hedge fund manager GSO, a signal that Blackstone CEO Stephen Schwarzman anticipates a rebound in the debt markets.
- New York AG probes Intel. The NY state attorney general began an investigation Thursday to establish whether Intel (INTC) violated antitrust laws in an effort to exclude competitor Advanced Micro Devices (AMD) from the chip market.
- Northern Rock to sell mortgages to JPMorgan. U.K. bank Northern Rock Plc will sell $4.3 billion in mortgages to JPMorgan Chase (JPM) as part of its effort to gather funds to repay the Bank of England for its bailout.
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