Another Rollercoaster Day On The Stock Markets

The ‘could go up, could go down’ club that is the Dow Jones these days continues its volatile flirtation with the psychological 8,000 level. More disappointing earnings, guidance numbers and layoff news from Microsoft (MSFT), eBay (EBAY), Lockheed (LMT), AMD (AMD) and the regional banks took their toll. The Dow finished down 130 points yesterday, despite a late in the day rally.

Today’s Market Moving Stories

• In Europe this morning, Merck reported good test results for their new MS drug. Shares are up while insurance names are proving the main drag with Axa off 5% and Allianz down 8.5%.
• The blockbuster news is that pharma giant Pfizer are looking to swallow up fellow drug maker Wyeth in a $60bn deal the likes of which we haven’t seen for aeons. The industry is now mature and is seen as being dogged by high production costs (R&D) and declining new product development. Both companies face big challenges solo due to patent expirations on some of their most lucrative products and heavy competition from generic drug makers.
• In after hours trading both Google and AMD were lower after disappointing the market. And tech shares led the Nikkei down 3.8% overnight with Sony and Samsung (who posted their first ever loss) the main drag on worries over the huge drop in exports and poor results. While Down Under, Babcock and Brown struggled as it said it saw no value for equity holders under its revised business plan and balance sheet restructure. It can’t be long before the administrators are called in methinks.
• More tales of broken China with a profit warning from their biggest auto maker SAIC who warned that 2009 sales may be halved. Recalled SAIC own 51% of Korea’s Ssangyong who filed for bankruptcy in early January. And it seems that the new US Treasury Secretary Geithner, who is just out of short pants, wants to start a trade war with China, accusing them of manipulating their currency. Rather odd timing given all those bonds they are going to have to force feed them to pay for Obamalus.
• Yesterdays US housing starts and building permits fell to record lows. So much for a bottom?
• Makes a refreshing change not to have mentioned the banks YET. Anyway Barclays CEO Varley is quoted in the Independent as saying that the bank will make still make a profit in 2008 after taking all necessary write downs (stop me if you’ve heard that one before). Belgium’s Fortis bank has just reported a stunning loss of €14bn for the 1st nine months of 2008 and said it expects to haemorrhage a further €4-5bn in Q1 2009.
• Bank of America have dumped John Thain; the man who flogged them Merrill Lynch for a fortune. Stories that he’d spent $1.2m on a refit of his office in a Dennis Kozlowski moment or that 75% of the latest taxpayer TARP money for BoA were to be used to pay Merrill Lynch bonuses were probably the tipping point!

No Bad Bank for Germany?
The German government has ruled out the creation of a state-owned bad bank which bankers have been lobbying in favour of during recent weeks. Instead both Angela Merkel and Peer Steinbruck appear to favour the idea of private-sector bad banks, similar to what Sweden did during its financial crisis in respect of the banks that were not nationalised. This private bad bank would be an asset management company. (It is not clear to us, how this would solve the problem. In Sweden the bad banks owned mostly properties, not toxic paper that is mostly worthless).

Data And Earnings Today
The UK is the first major economy to release its Q4 2008 GDP number today showing the extent of the super slowdown. A contraction of 1.2% was the consensus forecast but it came in at -1.8%. Sterling has fallen to a 23 year low of $1.36 versus the Dollar on this news.

From Europe important PMI data is out from France, Germany and the Eurozone as a whole. The readings were a tad better than expected by still worryingly weak.

Note Korean GDP was down a staggering 21% in Q4 2008 and China is now joining the rest of the world in sinking into the cesspit of an uncontrolled economic slump. The Yuan clearly needs to be DEVALUED, Mr Geithner, NOT re-valued!

Earnings to watch today include those from GE, Xerox and Harley-Davidson.

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