Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:50 AM ET
S&P 500: -0.25; 1,459.50
NASDAQ 100: +4.25; 1,974.75
Dow: +10; 13,176
NIKKEI 225: -2.22%; 15,764.97 (-357.19)
HANG SENG: +0.07%; 23,999.70 (+17.09)
SHANGHAI SE COMPOSITE: +1.48%; 5,355.29 (+78.11)
BSE SENSEX 30: +0.04%; 15,596.83 (+6.41)
FTSE 100: -0.15%; 6,182.00 (-9.20)
CAC 40: -0.02%; 5,428.97 (-1.13)
XETRA-DAX: -0.20%; 7,421.94 (-14.69)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.91%; $76.00 (-$0.70)
Gold: +0.66%; $714.40 (+$4.70)
Natural Gas: -0.15%; $5.49 (-$0.01)
Silver: -0.43%; $12.705 (-$0.055)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Crisis In Commercial Paper Reaching Critical Point
The next two weeks will be pivotal for global credit markets as nearly $140 billion in European commercial paper comes due, Deutsche Bank AG wrote in a note to clients Monday cited by Bloomberg (The Times of London and Wall Street Journal give lower figures of $113 billion and $120 billion respectively). About $60 billion of the commercial paper coming due is backed by assets of one form or another including by bonds and mortgages, while the other $80 billion is unsecured. To meet these high cash demands, banks are hoarding cash and have ceased lending, creating the current global liquidity crisis. One London-based banker called the current commercial paper conditions the "worst in the last 20 years." The yield in the U.S. for 30-day debt has jumped to 6.33% from just 5.48% on August 9. Another theoretical risk that emerges from the asset-backed paper coming due is that banks will be forced to swallow losses as assets such as mortgages prove much less valuable than previously assumed. Commercial paper is defined as a short-term loan, due within 270 days of being issued.
Sources: Bloomberg, Wall Street Journal, Times of London
Commentary: The Asset-Backed Commercial Paper Crisis: Just Another Credit Boom Gone Bad • Commercial Paper Slump Deepens, T-Bill Yields Fall • Commercial Paper Sinks As Investors Flee to Safety • Money Market Malaise: Commercial Paper Remains Problematic
Stocks/ETFs to watch: DIA, SPY, AGG, HYG
Housing Market Weakness Could Cause Weyerhaeuser to Close Plants
Lumber and paper company Weyerhaeuser said in a US regulatory filing on Monday that the market for wood products was not performing as expected, and would cause closures, curtailments, and restricted operations in its wood product factories. Last quarter, the wood-product business, which accounts for 36% of the company's revenue, lost $123 million and caused company sales to slip 11% from a year ago. The US housing market has severely hurt prices and created challenging market conditions. The filing also noted the markets for "cellulose fibers and containerboard, packaging and recycling segments continue to improve." The company has considered selling these assets, after receiving pressure to do so from large institutional shareholders for some time. Weyerhaeuser stock closed down 2.2% to $67.30 on Friday.
Sources: Wall Street Journal, Reuters
Commentary: 11th Hour Panic and Using More Lumber • Paper and Forest Product Sector Stock Picks
Stocks/ETFs to watch: WY. Competitors: IP, LPX. ETFs: XLB, UYM
Japan's Revised Q2 GDP Disappoints; BOJ Hike Unlikely
Japan's second-quarter (ended June) GDP declined more-than-expected, -1.2% vs. economists' average estimate of -0.7% in a revised data release Monday. The Nikkei 225 lost 2.2%, as stocks were already under selling pressure following Friday's stock market weakness in the US, which included a 1.8% fall in N225 Sept. futures in Chicago. GDP was negatively impacted by a revised 4.8% decline in capital spending, compared to a preliminary estimate of +4.9%. The government's initial Q2 GDP reading was +0.5%. This is the first contraction of economic growth since Q3'06 when GDP fell 0.4% annualized. Bond yields are now at their lowest levels in over a year and a half, as expectations of a follow-on Bank of Japan [BOJ] rate hike on Sept. 19 now stand at 0% and are increasingly doubtful for the rest of the year. Meanwhile, the yen rose about 1.5% against the US dollar to the 113.4 level, keeping pressure on exporter stocks like Sony -6.0% to ¥5,300. Other big decliners include ORIX -3.9% to ¥21,800, Canon -3.7% to ¥6,050, Nomura -3.3% to ¥1,827, Mizuho FG -3.1% to ¥657,000, Mitsubishi UFJ -2.8% to ¥1.03M and Toyota -2.4% to ¥6,440.
Sources: Bloomberg, FT.com
Commentary: Would a US Recession Negatively Impact Japan? ・Preparing To Put Money To Work In Japan ・Japanese Property: Fear Has Overcome Greed
Stocks/ETFs to watch: MFG, MTU, IX, NMR, TM, SNE, CAJ. ETFs: EWJ, FXY
Disney to Implement Toy Double-Checks - NY Times
Entertainment giant Walt Disney Co. said it will begin testing its toys, including random tests of toys already on store shelves, for unsafe levels of lead paint, The New York Times reported Monday. The move follows three major toy recalls by Mattel Inc., and represents an important shift in the industry. Previously, licensors like Disney relied on manufacturers for testing and quality control. "It sends the message that we are looking over their shoulders," said Andy Mooney, chairman of Disney’s consumer products division, said. The company will test not only for possible lead contamination, but to determine whether small parts fall off, for example. Separately, toy-store giant Toys 'R' Us said it will conduct random checks at its stores by having branded toys tested at independent labs, the Times reported. If toy sales drop significantly over safety concerns, the toymakers, who normally guarantee a minimum in royalty payments to licensors, could take a hit. While the new tests might result in some redundancies, with the holidays around the corner, "anything that is going to restore consumer trust has got to be a good thing," Wedbush Morgan toy industry analyst Sean McGowan said. Mattel shares have lost 17% over the past two months.
Sources: New York Times, Wall Street Journal, MarketWatch
Commentary: Is the Recall Frenzy Affecting Toy Stocks? • Mattel Could Be Hit With Lawsuits on Recalls
Stocks/ETFs to watch: DIS, MAT. Competitors: HAS, RUS
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Friday's Action
There are almost 153 million people in the U.S. civilian labor force, so when Friday's jobs report showed a decline of 4,000 jobs, the effect on stock prices shouldn't have been great -- but that wasn't the case.
Friday's violent reaction to the jobs report evidently hit a nerve with investors as they became less accepting of the high volatility now in the markets and sold stocks in a flurry of emotion.
Most analysts said that a weaker employment number reported could be good since it might convince the Fed to lower rates by as much as 50 basis points. But economists predicted a rise of 112,000 jobs, and the actual 4,000 losses represented the first decline in four years. The report received wide negative publicity with some commenting that the weakness strongly indicated the United States was headed for a mild recession.
There was little else to impact Friday's trading, so at the close the Dow Jones Industrial Average was off 250 points at 13,113. The S&P 500 dropped by 25 to close at 1,454, and the Nasdaq fell 49 closing at 2,566.
Volume on the NYSE was just over 1.4 billion shares with the Nasdaq trading almost 1.9 billion. Breadth on both exchanges was negative; on the New York exchange it was 3-to-1 and on the Nasdaq it was 4-to-1 down.
Crude oil (October contact) gained 40 cents to close at $76.70 a barrel and the Amex Energy SPDR (NYSEARCA:XLE) lost $1.29 to close at $70.26. The December gold contract rose again -- this time by $5.10 closing at $709.70. The Philadelphia Gold /Silver Index [XAU] fell by 26 cents to $151.44.
The holiday-shortened week resulted in a loss of 1.8% for the Dow Industrials, negative 1.4% for the S&P 500 and negative 1.4% for Nasdaq. For the year, the Dow is up 5.2%, the S&P 500 up 2.5%, and the Nasdaq is up 6.2%.
What the Markets Are Saying
The public's sentiment numbers over the last three weeks have approached a level of pronounced fear, despite the fact that the Dow is less than 900 points (6.9%) from its July high with absolutely no indication that the Aug. 16 low will not hold.
All of the major indices have completed inverse head-and-shoulders bottoms by breaking through the stubborn necklines of the formations on Tuesday but then pulled back to the necklines in a round of very predictable profit taking.
Admittedly, it may take some time to penetrate the resistance up to Dow 13,657, and we may even see a test of the support at 12,800. This week may give us some indication of where the smart money is going, as volume is expected to pick up from the lethargy of the summer and the shortened trading week.
The consumer credit data will be reported at 3 p.m. with an expectation of $8 billion. The markets this week will no doubt primarily react to any Fed member's comments as they look forward to the next Federal Open Market Committee [FOMC] meeting next week. And with $120 billion of commercial paper debt due for renewal this week investors will focus on the success of replacing it.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Tumble on U.S., Japan Economic Woes; Toyota, Samsung Decline Asian stocks fell the most in more than three weeks after the U.S. unexpectedly shed jobs for the first time in four years and Japan's economy shrank.
• Yen Strengthens Against Dollar, Euro After Slump in Global Stock Markets The yen rose against the dollar and the euro after a loss in U.S. jobs caused Asian stocks to decline, prompting investors to sell higher-yielding assets bought with loans in Japan.
• Newcrest to Sell $1.6 Billion of Stock to Exit Its Gold Hedging Contracts Newcrest Mining Ltd. (OTCPK:NCMGY) plans to sell A$2 billion ($1.6 billion) of stock to close its hedge book and repay debt as Australia's largest gold-mining company bets on a rising bullion price.
• Blackstone to Pay as Much as $600 Million for 20 Percent of China BlueStar Blackstone Group LP (NYSE:BX), manager of the world's biggest buyout fund, agreed to pay as much as $600 million for a 20 percent stake in China National BlueStar Group Corp., marking its first Chinese acquisition.
European Headlines (via Bloomberg.com)
• European Stocks Are Little Changed; Philips Gains, Credit Suisse Declines European stocks were little changed. Royal Philips Electronics NV (NYSE:PHG) rose after the region's largest consumer electronics maker raised its target for profitability.
• Bank of England Should Do More to Help Stem `Fear and Panic,' Buiter Says The Bank of England should do more to calm the ``fear and panic'' in financial markets to prevent corporate borrowing costs from rising further, former policy maker Willem Buiter said.
• Deutsche Bank Confident of Reaching Its Profit Forecasts, Ackermann Says Deutsche Bank AG, Germany's biggest bank, is ``confident of delivering'' on its profit targets for next year and beyond, Chief Executive Officer Josef Ackermann told investors today, according to presentation slides.