Roller coaster for futures this morning. First, the ADP report was big,anticipating job increases of 130,000 from the nonfarm payrolls report on Friday, way above expectations of 40,000, and moved futures up about 4 points.
Then, fourth quarter GDP report came in light at 0.6 percent, below consensus of 1.2 percent; futures dropped back.
1) More worries on financials and monoline insurers. The Street was worried to death two weeks ago that the AAA rating of the monoline insurers was under threat. That worry has not really gone away. The insurers are desperately trying to raise additional capital to keep those critical AAA ratings. Downgrades would mean downgrades of ratings of the bonds they insure, which would likely require additional writedowns from those who hold them.
Today several analysts weighed in. Oppenheimer said it saw additional writedowns of at least $40 b and perhaps as much as $70 billion in 2008 due to the impact of downgrades of the monoline insurers. Much of the writedowns could be concentrated at Merrill Lynch, UBS and Citigroup.
They downgrade Merrill Lynch . Bernstein also reduces estimates for Merrill Lynch.
Speaking of Merrill, CEO John Thain is speaking at a Citigroup financial services conference. He said that if monoline insurance companies "disappeared from the face of the earth" they would owe Merrill about $6 billion. He doesn't expect that to happen, but Merrill has already reserved $2.6 billion against that $6 billion, leaving exposure of about $3.5 billion.
Speaking of UBS ,they revealed another $4 billion in new write downs.And if you think Societe Generale has problems, look at rival BNP Paribas, which unveiled miserable fourth quarter results, down almost 40 percent from the same period last year.
2) Boeing beat on the top and bottom line, and raised earnings guidance for 2008, but it is still below analyst expectations. More importantly, operating cash flow guidance was reduced because of the revised 787 schedule. Stock trading down slightly.
3) Inflation worries continue. Kellogg has increased prices, following Hershey and other food processors as grain costs escalate. Kraftnoted that dairy costs rose 40 percent. They have raised their estimates for 2008 revenue growth because they think they can raise prices.
4) Good and bad news on mortgages. Hopes for a big wave of refinancings has been high among mortgage players.
Refi's rose 22.1 perecnt this week to the highest since July '03, but purchases fell 17.7 percent.
5) Goldman reducing 2008 and 2009 estimates at U.S. Steel after they reported disappointing numbers yesterday. The firm cites higher costs and thinks higher market prices for steel will take longer than previously thought.
6) Home builder Centex reported a much bigger loss than expected and said they don expect things to improve much in 2008.