- Fallout from the Fed's leap of faith into quantitative easing is continues to reverberate throughout the markets. The immediate effect of Ben Bernanke's plan to directly intervene by buying up to $300B in treasuries has been to force down the dollar, sending front-month crude over $50 and spot gold over $950. Adding to the volatility, the IMF cut its global growth forecast to -0.5% to -1.0% from +0.5-2.2% prior, and called on nations to extend stimulus plans into 2010. The Benchmark 10-year yield seems is steadying around the 2.5% level for the time being. Stock prices have been volatile as well with early gains generally giving way led by selling in the financials.
- Citigroup has outlined its strategy for converting the Federal government's big stake in the bank to common equity from preferred stock. The bank has registered 4.38B common shares for the conversion, which is about 80% of its 5.5B shares of outstanding common stock, and plans to ask its shareholders to authorize an expansion of its share authorization to as much as 60B shares, as it needs up to 16B shares to fulfill the entire preferred stock conversion. Some noted that Citi will also be doling out common shares to employees in lieu of cash bonus payments, given the continuing financial bonus brouhaha. In addition, Citi said it intends to undertake a reverse stock split at a ratio of somewhere between 1-2 to 1-30 at a date before June 2010, to eventually mop up the big pool of shares that will result from the conversion. Finally, the bank said it would sell $3B in credit card bonds under the TALF program. Note the WSJ reported overnight that some hedge funds have gotten crushed thanks to their moves to ride the government's coattails and buy preferred shares in Citi, only to see the spread between the common and preferred stock narrow rapidly and considerably over the last few weeks. Shares of Citi rose 25% before the open, only to cut those gains in half by mid morning.
- In other finance sector news, GE is holding an investor day event today. In a filing ahead of its investor presentations, GE reiterated that GE Capital should be profitable in Q1 and FY09, and that GE does not need outside capital, echoing comments from the CFO on CNBC two weeks ago. It also said it is very difficult to execute asset sales in today's market, but believes TALF may help, noting that many macroeconomic indicators are still deteriorating. Credit card company Discover Financial managed to stomp the analysts earnings estimates thanks to a big payment from its successful antitrust suit against Visa and Mastercard. But the company's metrics are still deteriorating, with rising delinquency rates and charge-offs indicating that there's still trouble ahead for the firm. Adding to the pressure on the credit card industry, in a speech last night President Obama said he supports a credit-card bill of rights, insisting that banks have pushed credit cards in "damaging way." Shares of DFS-4% were in the red mid morning, along with those of competitors AXP, COF, V and MA.
- Oracle is a big winner this morning, with shares up 13% in the early going. Yesterday afternoon the tech firm modestly beat estimates and declared its first-ever dividend, of $0.05/shr. FedEx reported weak Q3 earnings, missing analyst estimates by more than 25 and guiding next quarter way below par. FedEx cited continued deterioration in global economic conditions leading to lower volumes at FedEx Express and FedEx Freight as the reason for the declines. But on an up note, the CEO said "we probably have hit bottom," noting he expects to see sequential q/q improvement moving forward. Shares of FDX+6% have sustained solid gains in early trading. Multiple retailers reported Q4 results that were either in line or a bit ahead of (already diminished) expectations this morning. PLCE, ROST and BKS made respectable gains ahead of the open, most of which evaporated with the overall declines in major indices.
- In currencies, the greenback remained on the defensive into the New York session thanks to pressure from the latest round of Fed quantitative easing. Dealers were noting that the Fed's dive into buying Treasuries would expand its balance sheet and could stroke inflationary concerns, hurting USD sentiment. Chatter also focused on the implications for the United States' AAA rating. EUR/USD finally broke above the initial post-Fed quantitative easing resistance of 1.3536, moving towards the 1.37 level for fresh seven-week highs. A few currency analysts are calling for a EUR/USD target toward the 1.40 handle. The yen was firmer compared to opening levels from the Asian session, with USD/JPY was probing below the critical 95 neighborhood throughout the NY morning. Note that this has been a pivot level over the last decade for setting trends. GBP/USD was back above the 1.45 level for the first time in three weeks. USD/CHF was weaker as well, testing 1.1220 during the session. With front month NYMEX crude futures at level week highs and back above the $50 handle, the CAD and AUD were firmer. Spot gold also aiding their cause as it held the pivotal $880/oz level in cash on Wednesday and looks poised to retest the $1,000 level.
- In other cross action, EUR/JPY was unable to sustain a move above the 130 level during the Asian morning. EUR/CHF held the 1.5350 level in the New York session amid fresh rumors that the SNB was again buying euros for Swiss Francs. Note that the EU's Solana said the Ukraine situation could have implications for the Euro Zone earlier today. Germany's IFO's Sinn commented that without a joint euro bond issue the euro could "go bust" and noted that it would be difficult to bail out a large EU country such as Italy.
