Market’s Euphoria Only Lasted A While: Stocks Down And Lehman Shares Plummet

Did the euphoria last only 24 hours? Investors’ sentiment has reversed again on Wall Street. Just on Monday, US stock indices, plus stocks around the world, rose on news of the government’s bailout of crooked mortgage giants Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), but today, the atmosphere has changed dramatically - US stocks are down. There’s simply not enough bullish buying power. Was yesterday’s stock rally just a short covering in action? Possibly.

Today’s release of worse-than-expected US pending home sales wasn’t helpful to the overall US housing market picture. According to the NAR, the index for pending sales of previously owned homes fell 3.2% in July to 86.5 (88.6 expected) from 89.4 in June. In June, pending home sales rose 5.8%. Compared to a year ago, the index was down by 6.8%. Seems like there hasn’t been any improvement as can be seen in the latest data, even NAR said that “pending home sales are oscillating month-to-month, with the long-term trend essentially flat.”

Bursting-at-the-seams home inventories are still the main problem, but with government taking over the problems of Freddie and Fannie now, interest rates for 30-year mortgage loans are dropping. The national average has now dropped to below 6% - about 0.5% lower from the high reached in July. It is hoped that more Americans will be enticed into buying homes with the lowered mortgage rates, and thus help to reduce the number of homes for sale on the market, which in turn would help stem price decline.

Lehman (LEH) is hogging headlines again. Its shares were brutally shorted Tuesday, plunging more than 35% (at the time of writing) after a Dow Jones report mentioned that the state-owned Korea Development Bank has ended talks with the desperately-seeking-for-capital Lehman, and no deal has come out of it. KDB, an ardent suitor, has walked away? Is Warren Buffett still interested? Have they tried calling Bernanke again? It is becoming increasingly likely that Lehman may be forced to sell off its asset management division, including Neuberger Berman, which is highly prized.

It has been said that some firms may express interest for Lehman once they have a good look at its balance sheet when it next issues its earnings, which is around the corner. There is now talk that Lehman will release its earnings results on September 18, instead of a previously confirmed Sep 24.

Will the Fed raise rates later this year? Traders don’t think so. They are pricing in only 2% odds that the Fed may raise its interest rate from the current 2.25% before year-end, down from the 22% chance from earlier. In the forex trading, the US dollar retreated against major currencies such as the Euro, Swiss franc, British pound and Japanese yen Tuesday. As expected, USD/CHF bulls took profits around 1.1370 before retreating downward. EUR/USD fell to an intraday low of 1.4050 before bouncing upward to hover around 1.4200 currently.

Economic Calendar For Wednesday:

UK trade balance 0830 GMT

US MBA mortgage applications 1100 GMT

Reserve Bank of New Zealand rate decision (rate expected to be cut from 8% to 7.75%) 2100 GMT

Subscribe by RSS Subscribe by Email