Trader Talk

Mixed Signals From Overseas


Overseas markets are mixed this morning. Australia cut its interest rates to a record low 3.25 percent and unveiled a stimulus plan, while the Bank of Japan said it would buy up to $11 billion of shares held by banks.

The game plan for the next three days is a bit confusing.

Aside from earnings guidance, the conflict is between the non-farm payroll number due on Friday and the stimulus plan. On the one hand, most traders are bearish because they believe the non-farm payrolls will show a loss of jobs well beyond current expectations (loss of 500,000); on the other hand, some believe that the outline of the stimulus plan will become clearer by Monday and that will give a modest boost to markets.

Some are also excited that the Baltic Exchange Dry Index has been up 10 days in a row (still over 90 percent below its highs in May of last year).

Elsewhere, rather grim commentary from Dow Chemical , UPS and Motorola are the main pieces of news:

1) Dow Chemical down 2 percent reported a big miss, a loss of $0.62 vs. gain of $0.06 expected. Sales were down 23 percent, operating rates are at historically low levels (64 percent, lowest in 25 years), and prices were down 6 percent (even though feedstock and energy costs were down).

Dow noted that their inventory levels remain very low and that "when a recovery begins the back half of the year, the recovery could be rapid."

Dow gets more than 60 percent of its sales outside the U.S.

2) UPS, surprisingly, up 3 percent pre-open, said total volume shipments in the U.S. decreased 4.4 percent and reported earnings of $0.83, 2 cents shy of expectations. They are providing guidance only for the first quarter: $0.52-$0.68 vs. an estimate of $0.65. They are also suspending their 401(k) match and freezing salaries.

3) Motorola down 12 percent pre-open, axed its dividend ($0.05 quarterly) and reported a loss of $0.01 cent (ex-items) vs. expectations of 0 cents profit. Motorola guided first quarter to a below consensus loss of $0.10-$0.12.

4) At least Merck did OK: $0.87 was ahead of expectations of $0.84, while guidance of $3.15-3.30 vs. $3.29 analyst consensus also looks OK.

5) Citigroup issued its first quarterly progress report on use of the TARP money. Noting they have received $45 billion from the government, they said they were spending $36.5 billion in mortgage lending, student loans, and credit card, with most ($25.7 billion) going to residential mortgages.

Separately, Citi confirmed they were going to be auctioning off their Nikko Cordial securities unit. Reuters said it could fetch $3.4 billion. Remember, Citi bought it a little over a year ago for about $17.7 billion.

    • Citi Announces $36.5 Billion TARP-Backed Loans



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