Fear crept back into the markets Wednesday, killing the Fed's rate cut stock rally and setting Wall Street up for a sloppy session Thursday.
A stream of fresh economic data, including weekly jobless claims and Chicago purchasing managers, plus some big earnings news are expected Thursday morning. Google reports after the bell, but on tap earlier in the day are Anheuser-Busch , Bristol-Myers , P&G , and Master Cardto name a few. Of big interest will be earnings and commentary from MBIA , the bond insurer, one of the firms at the center of the latest credit-related storm.
CNBC's Charlie Gasparino reported Wednesday that MBIA, along with Ambac were close to being downgraded by credit rating agencies and that a major investor believes the two companies are understating their losses. Gasparino's report, during Closing Bell, came around the same time Fitch was downgrading another insurer, FGIC Corp. Several traders told me the combination of those two stories helped deflate a triple-digit stock rally, leaving the Dow minus 37 points on the day.
Standard & Poor's, after the closing bell, said it cut or may cut its ratings on $270 billion worth of U.S. mortgage-backed securities. At the same time, it placed another $264 billion of collateralized debt obligations on watch for a possible downgrade.
The Wall Street Journal reports Wednesday evening that MBIA has closed its deal with Warburg Pincus, giving the fund $500 million worth of MBIA shares. MBIA has said it expects to report losses of $737 million because of the deterioration of insured loans that are backed by home-equity lines, second mortgages, and collateralized debt obligations. It also expects to post mark-to-market pre-tax losses of $3.3 billion.
Some late day earnings news is not likely to perk up stocks either. Amazon.com shares tumbled after the bell, even though its earnings doubled. The online retailer issued an operating income forecast below Street expectations and revealed that margins are under pressure. Amazon earned $207 million in the quarter, compared to $98 million a year ago.
Starbucks reported net of $208.1 million, a hair above last year's $205 million. The coffee retailer, with its former CEO back at the helm, said it is paring back on growth plans and will slow the pace of new store openings.
Crude slid 0.8 percent to $92.33 in New York, as concern about a weak U.S. economy took over. MF Global senior vice president John Kilduff sent us the following comment on the Fed's half point rate cut:
"The Federal Reserve has moved aggressively again with the a 50 basis point cut. Given some supportive economic data there was a chance that they would disappoint the markets with a 25 point cut. Clearly, given the virtual halt in GDP growth in Q4 this was the correct move. The move is supportive for energy prices, due, in particular to the further weakening of the dollar. But, if the ECB capitulates and cuts rates the dollar rout will end and energy prices should better reflect the underlying economic environment that the Fed is so concerned about," he wrote.
The dollar fell 0.7 percent against the euro Wednesday and continued to fall after hours. Gold ended at $920.60 per troy ounce Wednesday and was moving higher after the U.S. markets close.
Asian markets were weaker Thursday morning and U.S. stock futures were pointing to a lower opening.
Markets will pay special attention to the jobless claims Thursday, ahead of Friday's January jobs data. A robust jobs report from ADP has created some optimism around the government's jobs report.
Here is what to expect Thursday. All times eastern.
0830 Jan. Jobless Claims
0830 Dec. Personal Income
0830 Dec. Consumption Spending
0830 Dec. PCE Price Index
0830 Dec. PCE Core Price Index
0830 Q4 Employment Cost Index
0945 Jan. Chicago PMI
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