Despite Dubai, U.S. Markets Calm

For all the talk about a lack of transparency on the part of Dubai World, and for all the talk about how they dumped it on the market over a long holiday, and for all the talk about retail sales fractionally up on Black Friday being a disappointment (why?), the markets are...flat this morning.

Several observations about Dubai and emerging market debt:

1) because the country has very little oil, it was forced to go into property, tourism, and port services. That dependence on the global property market makes Dubai very much a special type of risk.

2) this will make investors more selective about emerging market debt. One trader noted to me this morning that Hungary is not equal to Brazil; Estonia is not equal to Korea.

3) while it is not clear that a government will back quasi-sovereign debt, most traders believe that there will be a restructuring, that Dubai and Abu Dhabi cannot afford the reputational damage of walking away. So Abu Dhabi will backstop a good part of the debt. There will also be a haircut from creditors, and a restructuring of sorts.

Apropos of this, Moody's this morning said the Dubai World Restructuring is unlikely to threaten the sovereign credit of the UAE and Abu Dhabi.

4) These kind of announcements used to be par for the course in emerging markets; indeed that is why the yields are higher in emerging markets in general.

One interesting question: who owns this $60 billion in bonds? I have not seen any good figures on this. Remember, this is different than the loans outstanding--roughly $123 billion, and this may be the bigger issue. Half of it is owned by UK banks, about 25 percent by other European banks, less than 10 percent U.S. banks, and less than 10 percent Japanese banks.

Once again, the Europeans are the most exposed.

Some European banks like Lloyds , ING Group, are trading down a bit this morning.

Elsewhere;

1) The steel sector trading up this morning on an upgrade from Goldman Sachs to attractive from neutral. The reason: "Steel and scrap prices in the US have bottomed in our view, Chinese prices are rising, inventories remain low, a weak dollar has brought the US close to being a net exporter, and we expect better industrial and auto demand in 2010."

U.S. Steel up 4 percent pre-open, was added to the Conviction Buy List, with the target price increased to $54 from $49. AK Steel up 3 percent, ArcelorMittal up 2 percent as well.

2) Retailers are up 1 percent to 2 percent pre-open after the National Retail Federation reported that Black Friday traffic was up 13 percent from last year, but spending per shopper fell 8 percent from a year ago.

Separately, ShopperTrak estimates that spending rose a very slight 0.5 percent from Black Friday 2008, with consumers spending $10.66 billion on Black Friday this year.

3) UnitedHealth reaffirms its 2009 & 2010 earnings guidance. The current outlook remains cautious, however. For the current year, the healthcare provider continues to expect earnings of $3.15 vs. $3.16 consensus. Next year, the firm still sees earnings mostly below current Street estimates ($2.90-$3.10 vs. $3.08 consensus), with revenues a tad on the light side too ($88.5 billion-$89.5 billion vs. $89.44 billion consensus).

4) Deere is up 3 percent following an upgrade at JPMorgan. Raising the agricultural equipment maker to "neutral" from "underweight," the broker says that the company's earnings guidance issued last week gives "realistic expectations for investors." JPMorgan cautions though that sales of agriculture equipment "are likely to remain under pressure in 2010."

5) National Bank of Greece, Greek's largest lender by assets, down 2 percent in U.S. trading this morning. Chairman and CEO Takis Arapoglou resigned last week. The Greek stock market dropped 9 percent last week. While Greek banks appear to have little exposure to Dubai, the concern is over the Greek economic outlook.

Keep an eye out for little ripples like this one in Greece.

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