| MARKET SNAPSHOT: Market Still Facing Headwinds From Credit, Economy
In electronic trading on Monday, stock futures rose, with futures on the Dow Jones Industrial Average up 36 points and S&P 500 futures up 5.4 points. The FTSE 100 rose 1.7% in London to lead European stock markets higher in afternoon trading. Asian markets were mixed, with the Hang Seng down 1.3% while the Nikkei 225 edged up 0.1%. Housing sector reports Fresh off the central bank's downgrade of the U.S. economy, investors will return from the holiday to reports from the beleaguered housing sector and results from J.C. Penney Co. (JCP) and tech heavyweight Hewlett-Packard Co. (HPQ) A three-day snapback rally, interrupted by a sell-off on Thursday, was enough to pull the major stock indexes higher last week, but it wasn't enough to convince Joe Liro, equity strategist at Stone & McCarthy Research Associates, that the market is ready to extend gains.
Evolution of economy will tell whether Fed overreacted
Monday was a holiday in the US – Martin Luther King day. But Ben Bernanke was in the chairman's office at the Federal Reserve, working through the holiday as he often does. On his desk his Bloomberg, Reuters and Dow Jones terminals flashed red as selling in global equity markets spread from Asia to Europe. The US markets were closed, but US stock futures were still trading, and they too started to plunge. When US markets reopened on Tuesday it looked as though there would be a bloodbath. .
Market Watch | An arbitrage opportunity, almost risk-free
There are two ways to participate in a retail-fuelled momentum market. The aggressive way is to buy stock futures in momentum stocks and hope the party lasts long enough. The conservative way is to milk the substantial arbitrage opportunities that arise out of the general appetite for stock futures. Something which a lot of institutional investors do actively. This is like the good old badla: in times of heightened speculative activity like this, badla rates would shoot up to 20-25 per cent. Virtually risk-free returns. Exactly what you can capture today by playing between the cash and futures market. The thing to monitor is how much premium the futures of any stock is trading at above the cash market price. If the premium is 1 per cent or more, it opens up a good arbitrage opportunity.
Gold Reef CEO Joffe defends futures sale
GOLD Reef Resorts CEO Steven Joffe says the Securities Regulation Panel (SRP) has written to him, asking him to explain his sale of single stock futures while the company was in negotiations that might have resulted in it being sold. “We were not under cautionary at the time,” Joffe said on Friday. “I did not know that I had to get permission from the SRP.” Joffe is said to have gained R17m from the sale of the futures at R33 a share. Gold Reef’s current share price of R23 is substantially lower following the withdrawal earlier this month of an offer for the company by a private equity consortium of R34 a share. The consortium comprised Gold Reef Management, Ethos Private Equity and US bank Goldman Sachs.
US futures decline on Amazon, Merrill
US stock futures fell today as Merrill Lynch reported its first quarterly net loss in nearly six years and as earnings by Amazon disappointed some investors. The world's largest brokerage reported write-downs of $7.9 billion from leveraged loans from corporate takeovers and bad bets on mortgage securities. It had a net loss of $2.3 billion. Merrill's shares fell 1.1 per cent to $66.40 before the open. "I don't think the Merrill's number going to do too much even, though it's a significantly larger write-off," Owen Fitzpatrick, head of US Equity Group at Deutsche Bank Private Wealth Management, in New York, said."This is a sector that has been reporting some pretty poor numbers, so this isn't too big of a surprise." S&P 500 futures were down 8.10 points and below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
US Dollar to Remain Weak as Fed Prepares for another 50bp Cut on Jan ...
The volatility in the financial markets caused panic at the Federal Reserve, resulting in the first intermeeting rate cut since 2001. Before the US stock markets opened, Bernanke slashed the Fed Funds rates by 75bp, the largest cut in 23 years. With Dow futures falling 500 points on Monday, the Fed refused to sit back and watch the US stock index plunge another 4 or 5 percent. They knew that they needed to act quickly and significantly to prevent US equities from wiping out billions of dollars off the value of publicly traded US companies. Did it work? Yes and no. The Dow did not fall 500 points, but it still ended the day down 128 points. Although the Fed's 75bp emergency cut indicates how serious they are about averting a deeper slowdown in US growth, it is not enough. According to the statement that accompanied the move, the Fed's primary concern was increasing downside risks to growth, a deepening housing contraction and softening labor markets (more details on the Fed's Emergency Rate Cut) Fed's Emergency Rate Cut).
DTN analyst, USDA official square-off on reports
Last Friday, USDA's World Agricultural Outlook Board (WAOB) cut its estimate of U.S. corn ending stocks by 359 million bushels compared to its estimate of a month before. The move set off a bullish shockwave that pushed corn futures at the Chicago Board of Trade over $5 a bushel in successive limit-up trading sessions.In its World Agricultural Supply-Demand Estimates (WASDE), USDA attributed the drawdown in corn stocks to an increase in feed and residual use. But DTN Senior Market Analyst Darin Newsom, in an article published Wednesday, expressed skepticism about USDA's supply-demand report, comparing USDA's report process to the Bowl Championship Series' method of selecting a national college football champion. And Newsom told Brownfield an increase in livestock feeding is almost certainly not the real reason there's less corn on hand.
Dollar - How Low Will The Fed Go?
Nevertheless, the yen may have an opportunity to gain this week, as risk aversion trends remain the primary driver of the low-yielding currency. As a result, traders should keep an eye on global stock markets, as a plummet in equities could push USDJPY back down towards 109.00. – TB Can Cable Hold Above Critical Support at 2.02? Last week we questioned whether the Bank of England would opt to cut rates in December, and indeed, they did. The BOE cut rates by 25bp to 5.50 percent for the first time in more than two years, in line with what futures markets were pricing in but against consensus estimates of economists polled by Bloomberg News. In the bank's policy statement, the MPC noted that signs had emerged that growth has started to slow, and that downside risks were mounting as "conditions in financial markets have deteriorated and a tightening in the supply of credit to household and businesses is in train." Meanwhile, the BOE judged that inflation would hold above target in the short-term, but that a slowing of demand growth would pull inflation "back to target in the medium term." The minutes of this meeting will be published on December 19, but with Cable bouncing from critical support at 2.02 following the decision, the markets have judged the BOE's statement as somewhat neutral as the MPC is not likely to continue easing monetary policy in January given inflation risks.
SEBI considers circuit filters on stocks traded in F&O segment
MUMBAI: In a move to check wild stock swings, markets regulator Securities and Exchange Board of India (SEBI) is planning to overhaul the derivatives segment.
The proposals under consideration include circuit filters on stocks traded in the futures and options (F&O) segment, possible changes in the market-wide position limits and review of margining system, a person familiar with the development said.
It is believed that the swift and massive fall on January 22 shook SEBI into action. Trading was halted within minutes of opening, as indices hit the downward limits on very low volumes. SEBI has also received several suggestions from market intermediaries on how the loopholes in the current system can be plugged.
Apart from the margining system, the large number of stocks in the F&O segment was also said to have contributed to the indices going into a free fall.
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