Wednesday Look Ahead: Exxon's Battle Royale
A key piece of economic data, some big earnings reports and a testy fight between Exxon Mobil and Venezuela may influence markets Wednesday.
Retail sales for January are reported at 8:30 a.m., and markets will be watching the number carefully for a read on the consumer. A 0.4 percent decline is expected for January. Business inventories are reported at 10 a.m., just after the market open.
Venezuela late Tuesday turned up the heat in its dispute with Exxon , by saying it was cutting off supplies to the oil major. Oil markets may also react to inventory data, expected at 10:30 a.m.
Oracle of Wall Street
Tuesday's markets got a boost from investor Warren Buffett's revelation that he has offered to reinsure $800 billion in municipal bond debt guaranteed by three troubled bond insurers. Buffett made that announcement on "Squawk Box." Those comments got stocks moving higher.
Markets will continue to watch the tale of the bond insurers Wednesday. Turnaround investor Wilbur Ross will be a guest on "Squawk Box" Wednesday in the 7 a.m. hour. Ross has his own plan in mind for the bond insurance business.
Plus, there's been plenty of unsubstantiated rumor mongering surrounding the financial sector, with speculation mounting about which company may be next to announce a write down or layoffs.
Wednesday's markets will also consider the outcome of the latest Presidential primaries in key mid-Atlantic states, Virginia and Maryland.
Some big companies report earnings Wednesday, including Coca-Cola , which is expected to report profits of $0.55 per share for the fourth quarter. It is expected to report an 18 percent increase in revenues to $7.008 billion. Deere also reports before the bell.
Another stock in focus could be Applied Materials. Its shares climbed late Tuesday after its earnings came in better than expected. The company reported net profits of $262 million and said it is seeing strength in new orders for its display products and its sunfab thin film line, used in making solar panels.
Oil was moving above $93 per barrel in the Tuesday evening electronic session after Venezuela said it was cutting off Exxon Mobil's supply for "legal-economic harassment." Venezuela had more broadly threatened to cut off oil sales to the U.S. over a legal case brought by Exxon. Exxon has temporarily won rulings that freeze up to $12 billion in Venezuelan overseas oil assets in a fight over payment for a nationalized crude project.
Yet, Venezuela also says it would continue to honor the commitments of its international joint venture with Exxon. "They're just talking out of both sides of their mouth at this point," said John Kilduff, senior vice president of M.F. Global. Kilduff said it seems the Chalmette, La. plant would therefore not be impacted because it is a joint venture with Venezuela's state oil company, PDVSA.
Wednesday "in New York and London, there are hearings as to whether the injunction on freezing the assets will be permanent," said Kilduff, a CNBC contributor. "You never know how that will go, but it's likely in my view that they will be permanent and Chavez will take this a step further. It's certainly a confusing statement."
Exxon later issued its own statement saying it would take steps to ensure its supply after the Venezuelan action.
Kilduff said Venezuela President Hugo Chavez has been itching with a fight with the U.S., and the rhetoric he is using on economic warfare now is particularly strong. "Chavez has been spoiling for something for a long time...Just because it doesn't make economic sense, to him, it doesn't really matter, in my view."
Conoco Phillips also is in a dispute with Venezuela over nationalized assets. CEO James Mulva was on "Power Lunch" Tuesday told CNBC energy correspondent Sharon Epperson that his company is in negotiations with Venezuela and he expects them to continue through 2008.
"I can't necessarily comment with respect to what President Chavez has indicated. What I would say is our discussions with the Venezuelan ministry continue right along, irrespective of what has been said. So hopefully, we can reach an amicable solution here," he said, speaking from Cambridge Energy Research's annual conference in Houston.
Oil closed the regular session Tuesday at $92.78 per barrel, down $0.81, or 0.9 percent.
The Dow Tuesday climbed 133 points, or 1.1 percent though it had been sharply higher. The Nasdaq closed flat, unable to sustain gains in technology shares, and the S&P was up 0.7 percent.
Whither Bond Insurers?
Buffett, on Squawk Box, said that one of the three bond insurance firms had turned down his offer. It was reported Tuesday evening that Ambac had turned him down. The stocks of Ambac and MBIA were crushed during the trading day. Traders speculated neither firm would accept Buffett's offer because it would basically give Buffett a reinsurance business for the municipal bond assets, which are not expected to default, while the companies would retain their potentially troubled CDO portfolios. Yet the market saw the plan as a vote of confidence.
"What Buffett has done is a very good thing for the capital markets...what he's doing is he's offering a way that municipal bond owners that don't insure bonds can be protected and he's doing it in a way that gives other people an opportunity to bid if his price is too high," said William Ackman of Pershing Square Capital on "Street Signs" Tuesday. (Ackman has been shorting the stocks of monoline insurers and he said he will continue to do so.)
"So, I think it's a very smart solution and whatever capital is left after the bond insurers pay a premium to Mr. Buffett for assuming the exposure is available for the other risks and if they're correct that there aren't meaningful losses on the CDOs and other exposure, then it's good for shareholders. I think at the end of the day, it calls the bond insurers bluff because they're not going to take the proposal because there will not be enough funds left to pay their structured finance liabilities," he said.
Data due Wednesday morning. All times eastern.
8:30 Jan Retail Sales data
10:00 Business inventories
Questions? Comments? email@example.com