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GM Drives Fear, But Dollar Heading Market Off The Road?

General Motor's surprise $39 billion lossdrove fear right back into a stock market but the collapsing dollar is what's worrying Wall Street. Oil is rising on inventory data but its move has been tempered by reports of a smaller than expected decline in crude supplies. Oil overnight shot above $98 per barrel and it was expected it could shoot up to $100 per barrel if inventories showed short supplies.

"The decline in inventories was less than expected but there was so much attention ont his report, it was almost set up for disappointment," said M.F. Global senior vice president John Kilduff. "Demand for gasoline was actually up for the week despite the price of $3 plus (per gallon,)" said Kilduff, a CNBC contributor..

Shrinking Dollar
A Chinese official's comment that China should balance its reserves by adding strong currencies to offset the weakening U.S. dollar put further pressure on the already wobbly green back. In a flight to quality trade, money continues to move into Treasurys, pressuring the yield curve to its widest level in more than 2-1/2 years. The two-year bond's yield fell to a mid-2005 low.

Gold was trading higher and the dollar hit a low of $1.47 against the euro and $2.10 against the British pound in skittish trading. Cheng Swei, vice chairman of the standing committee of the National People's Congress, was quoted by the Financial Times as saying: "We should take advantage of the appreciation of strong currencies to offset the depreciation of weak currencies."

Apparently Cheng Swei tried to play down his comments, noting that they were unofficial. But the trade was already in motion and traders think the sentiment may be real.

"The Chinese are making comments because of what the dollar's doing. The dollar's not doing what it's doing because of China," said CNBC's Rick Santelli. "We're sitting in a room with cardboard boxes and now that it's on fire, we're yelling at the guy who threw the match in there."

Earnings Central
GM reported a net loss of $39 billion, its biggest loss ever took after taking a one time charge for tax issues. GM indicated that there are near term pressures on sales because of the economy and the housing market in North America. Before the charge, GM's loss totaled $1.6 billion. GM's stock was under pressure this morning, contributing to a big decline in Dow.

CNBC's Phil Lebeau says the sales picture for GM will not improve any time soon. "You're going to see pressure on the sales front. You're not going to see cost benefits from the UAW agreement kick in until the third quarter of next year so we might have numbers for the fourth quarter and first half of next year that are just okay," said Lebeau. He said things could start to improve in the second half of 2008.

Time Warner reported a 52% decline in third quarter profits to $1.09 billion which was in line with estimates. The market will be watching for Cisco, AIG and News Corp earnings after the bell.

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Interesting that Richmond Fed President Jeffery Lacker said history will show the Fed took the right actions in response to financial market turmoil in early August and that the stigma about discount window borrowing is overblown.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.