Jobs data for October will set the course of trading Friday, and maybe even for days after.
"I think it will be good for the market to focus on fundamentals rather than the ethereal notions of credit and its relative crappiness," said CNBC senior economic correspondent Steve Liesman. "Fundamentally, the whole credit issue only matters to the extent it affects the economy." Economists forecast an unemployment rate of 4.7% for October, and the consensus is for 80,000 non-farm payrolls.
On Thursday, the stock market was ruled by fear and Wall Street spent the day scaring itself as the rumor mill churned with talk of credit troubles at all kinds of banks, hedge funds and brokerage firms.
It all started when CIBC World downgraded Citigroup to sector underperformer from sector performer, citing capital concerns. Citi's dividend could be in jeopardy, CIBC says. J.P. Morgan's bank analyst defended Citigroup stock, saying the dividend is not at risk and its meeting its capital requirements and Bank of America's analyst also defended Citi.
Paralleling the worries about the biggest U.S. bank were rumors that some of those off-balance sheet creations -- structured investment vehicles (SIVs) -- were liquidating. Traders say there continues to be worry about the vagueness of the Treasury and bank-sponsored plan to create a super fund to hold the toxic debt.
"SIVs equals sell. That's what you do when you hear those rumors," said one trader we like to talk to. Citigroup, the rest of the financial group, and the stock market all tanked. By the end of the day, rumors were circulating that Citigroup CEO Chuck Prince was out and the Citi board was planning an emergency meeting. Similar rumors have cropped up for weeks but with the ousting of Merrill Lynch CEO Stan O'Neal earlier this week, "ceo-icide" has taken on a new meaning on Wall Street.
In fact, those Prince rumors have picked up some real currency. We have it on good sources that some traders have formed a pool betting on what will come first - the axing of Prince or $100 oil.
The Dow fell 362 points Thursday, or 2.6%, the biggest drop since Oct. 19 and the fourth biggest decline this year. The Nasdaq slumped 64 points or 2.2% and the S&P 500 lost 40 points, a 2.6% decline. Meanwhile, a flight to quality into the Treasury market pushed yields lower.
Probably perturbing the stock market more than anything was the sober, second day view of the Fed's statement. Wednesday's relief rally turned into a selling spree as investors digested the fact that the Fed has signaled it is not necessarily in an easing mode. That means no guaranteed rate cut in December to keep the stock market humming.
For this reason, economic news will take on more import. The employment report is the first important data point the markets will focus on, and it has been key in defining the market's notion of what the Fed's view of the economy might be.
In the stock market -- we had fear, we had rumors, but we had no real news on credit. But there were some other headlines of interest Thursday.
New York's Attorney General Andrew Cuomo alleged a major real estate appraisal company colluded with Washington Mutual to inflate the value of homes. Cuomo said the case was the first in what he sees as an industry-wide problem. If that’s true, this trend would have aggravated the subprime mess - the issue of weak mortgages being given to people who were paying more than they should for assets that lost value.
In addition to jobs data at 8:30 a.m., factory orders are reported at 10 a.m. Earnings news will also be important Friday. Cigna, Duke Energy, NYSE Euronext and Martha Stewart Omnimedia are set to report.
Crude oil fell $1.04 per barrel Thursday or 1.1% to $93.49. It is up 52% year to date. The dollar rose slightly against the euro Thursday but fell 0.7% against the yen.
What Are You Smoking?
Those words took on new meaning on Thursday as street watchers couldn't get enough of the Wall Street Journal story about Bear Stearns CEO Jimmy Cayne.
The article depicted him as a back-slapping CEO, polishing his golf and bridge games while Bear's hedge funds burned and the markets were in turmoil last summer. And the most amazing tid bit in the article -- he allegedly smoked marijuana during bridge tournaments. Cayne said the article's allegations were untrue, and that he had not engaged in inappropriate conduct.
But he made this comment to CNBC's Charlie Gasparino Thursday: "It's unbelievable, the phones are ringing off the hook, and everyone wants to play golf with me."
We hear there are some unhappy Bear employees. The layoffs of 300, disclosed this week, cut across more than just the credit areas, and a lot of people there are beginning to fear for their jobs. Maybe Cayne among them.
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