Strong Dollar, Weak Commodities Now A "Problem"
The combination of a strong dollar and weak commodities, which was greeted with relief in August, is now causing some concerns.
New Zealand cut rates 50 bp last night to 7.5 percent, twice what was expected. The dollar is again rallying to new highs against the Euro. Traders in Europe are awaiting a report on industrial production tomorrow; it's expected to show a decline, and there is considerable speculation the ECB could cut rates.
Commodities continue to drop, as they have for 7 of the last 8 trading sessions.
With futures weak again here, we are very close to breaking the recent closing low of July 15 of 1,214.
1) Lehman trading at $4.10, last night closed at $7.25, has already traded 23 million shares pre-open. There is considerable speculation about what, if any, price they will be able to negotiate for all or part of Neuberger.
2) Merrill Lynch (down 13 percent) and Wachovia (down 6 percent) are also heavily traded; other financials traded include AIG(down 5 percent), Morgan Stanley (down 7 percent), UBS(down 6 percent), Bank of America(down 6 percent).
3) CSXup 4 percent, raised full-year guidance on strong performance and continuing demand for coal shipments.
4) Wellpoint said it would take a third-quarter charge due to its holdings of Fannie Mae and Freddie Mac stock. Originally worth about $243 million, it's now worth about $39 million. However, guidance is within expectations.
5) European retail stocks are weak as several large players reported disappointing results. Strangely, one of the few bright lights in the U.S. are retail stocks like Home Depot, Lowe's, and Gap, which have outperformed the overall market for over a month. These are early cycle plays, so they are a good barometer for the bull position.
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