Street Expecting At Least 25 BP Cut

Here are my morning thoughts:

The entire Street is expecting a 25 basis point cut in the Fed funds rate, and at least that much in the discount rate. A small but vocal minority believe that a 50 basis point cut is more appropriate, given the evidence of a slower economy and the recent return of a choppier credit market.

What all this means is, as Lowry's pointed out this morning, that the markets have gone a long way toward discounting the 25 basis point cut. It's true we are up, but this is a classic case where the largest stocks have dragged the indexes up. Breadth on both the NYSE and NASDAQ have not been particularly strong recently, nor has volume been particularly heavy. In short, the recent gains seem based more on light supply rather than a notable increase in demand.


1) Look at AGCO ...up 10% pre open to an historic high.

AGCO reported a huge earnings beat ($0.77 vs. $0.30 estimate) and raised their guidance on "Robust global farm equipment markets," as Chairman Martin Richenhagen noted. Higher commodity prices in key markets like Brazil were a big help; unit sales in South America were up 44%. Here's the key point, from Richenhagen: "The world's growing population and the economic expansion in Asia are increasing he consumption of food and agricultural products...growing biofuel production is placing further demand on the world's grain supply and supporting increases in farm prices."

2) Like all global producers, Colgatereported modest growth in the U.S.and outstanding growth overseas: North American sales up 3.0%, Latin America up 16.0%, Europe/South Pacific up 12.0%, Greater Asia/Africa up 18.5%

3) Construction materials maker Martin Marietta reported good and bad news: pricing for aggregates (granite, limestone, sand, gravel) are up notably, but the continuing decline in residential construction is causing them to reduce earnings for the current quarter...they are expecting volumes in the aggregates business to be down 6%-8% for the year.

4) As expected, Swiss bank UBS reported a loss due to exposure to the U.S. mortgage securities business, and indicated that its investment banking arm (where the losses in subprime are located) isn't likely to be profitable in the the fourth quarter either. The overall bank should report a profit, however.

The market is now adjusting to the reality that fourth quarter earnings for financials are likely to contain surprises as well; as a result, earnings estimates for financials as a group in the fourth quarter have come down dramatically in the past few weeks, from 7.0% growth to 2.0% growth, and it may yet go negative. This for the FOURTH quarter.

5) Private payroll processor ADP beat estimates, and are guiding earnings for the full year to the high end of estimates.

Questions? Comments?