Market Insider/Friday Look Ahead
Consumer inflation data is big on Friday's agenda after Thursday's producer prices showed wholesale level inflation surging at the fastest rate in 34 years.
The PPI jumped 3.2 percent in November, way above expectations. Without food and energy, core producer prices rose just 0.4%. The energy component rose 14.1 percent.
The CPI is expected to rise 0.6 percent and the core is forecast to be 0.2 percent. With the big gain in producer prices, some traders are looking for creeping inflation to show up with a bigger-than-expected number at the consumer level as well. As with PPI, a big factor driving Friday's consumer data will likely be higher energy prices.
Retail sales for November, also released Thursday, rose a surprising 1.2 percent, but it was no surprise the number got a big boost from increased spending on gasoline. Lehman Brothers economists said late Thursday they expect CPI to rise 0.6 percent for November or 4.1 percent year-over-year. The firm said the big jump in PPI "lends significant risk to the headline CPI print."
Stocks were choppy Thursday. The Dow finished up 44 points. Financial stocks were among the biggest losers, down about a half percent. Money flowed into the defensive utilities sector. That group was up 1.2 percent. The Nasdaq fell 2.65 points and the S&P 500 was up 1.82 points. Treasurys sold off, and the yield on the 10-year rose to 4.169%, while the yield on the two-year rose to 3.195 percent.
Just two days on the job and Citigroup CEO Vikram Pandit is already making moves. Citigroup, well after Thursday's closing bell, announced a plan for its structured investment vehicles which will result in Citi putting the assets and liabilities of SIVS onto its balance sheet. Citi says it is making the move in response to the threat of debt downgrades by rating agencies, and the plan is independent from a multi-bank plan for a SIV superfund. Citigroup says it still intends to participate in that plan.
Citi said its current SIV assets stand at $49 billion, down from $87 billion in August. The move would further deplete Citi's capital base and push its Tier 1 capital ratio even further beneath its targeted 7.5 percent level. The tier 1 capital ratio is watched by analysts as a measure of the bank's ability to sustain losses.
At the end of the third quarter, the ratio was 7.3 percent, above regulatory requirements. Citi says it will restore its capital ratio to its target by the end of the second quarter, 2008.
Former Fed Chairman Alan Greenspan, in an interview to be aired Friday on National Public Radio, says the odds of a recession are "clearly rising," reports Reuters.
"We are getting close to stall speed…and we are far more vulnerable at levels where growth is so slow than we would be otherwise," he said.
CNBC's Steve Liesman reported Thursday that Greenspan said during a luncheon speech that he recently changed his view on the chances of a recession, increasing the possibility to 50 percent from a previous forecast of 30 percent. On the likelihood of recession, he told NPR: "It's too soon to say, but the odds are clearly rising."
Foreign Buyers Unlock Value
JetBlue stock flew Thursday on reports that German airline Lufthansa would buy a near 20 percent stake in the company. JetBlue CEO David Barger told Dylan Ratigan in an exclusive interview on "Fast Money" that the $300 million investment will be used for working capital and is particularly helpful as jet fuel costs rise. Barger said Lufthansa, armed with a strong euro, approached JetBlue about a deal.
The deal comes on the heels of a purchase by Kuwait's state owned Petrochemical Industries Co of a 50 percent stake in five Dow Chemical global businesses for $9.5 billion. Dow stock moved up on the deal.
Oil fell $2.14 per barrel, or 2.3 percent, to $92.25 per barrel.
Meanwhile, the Senate late Thursday approved an energy bill that includes the first Congressional increase in fuel efficiency of cars and trucks since the 1970s and boosts production of renewable fuels, like ethanol. The legislation would raise fuel efficiency of cars and trucks by 40 percent by 2020, cutting an estimated 1.1 million barrels a day off of U.S. oil demand.
Around the World
Japan's closely-watched tankan survey of business sentiment showed sentiment among large manufacturers was worse than expected during the current quarter and is expected to continue to deteriorate. The quarterly survey, released by the Bank of Japan, showed sentiment also fell among non-manufacturers but was slightly better than expected. They too see worsening conditions.
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