5/2/09

The Dow Jones slipped 121.70 points to close at 7,956.66, the S&P 500 fell 6.28 points to end at 832.23. The Nasdaq edged 1.25 points lower to 1,515.05.

Kraft Foods led the Dow lower reporting lower quarterly earnings that suggested consumers are starting to cut back on even the basics. North America's top food maker reported lower quarterly earnings that also fell short of expectations, sending shares 9% lower. Costco Wholesale Corp, the largest US warehouse club, dropped 7% after warning that its quarterly earnings would fall short of estimates.

Banks went lower again as investors wondered whether the rescue plan from the government could wipe out current shareholders. Bank of America was one of the biggest losers, sliding 11.3%, touching a 19 year low earlier in the session.

Tech stocks continued to be stronger than the rest of the market, helping the Nasdaq finish near break even. Microsoft continued a three day run of gains to close 1% higher, while Intel Corp rose 2.1%. However, after the bell, Cisco Systems lost 4% after forecasting a drop of 15% to 20% in its current quarter revenue.

US light crude oil for March delivery slipped $0.46 to $40.32 a barrel. COMEX gold for April delivery gained $9.70 to $902.20 an ounce. Treasury prices edged lower, raising the yield on the 10 year note to 2.89% from 2.88%.

The Nikkei fell 89.29 points to end at 7,949.65 this morning. Earnings forecast cuts at companies from Casio Computer to Alps Electric overshadowed optimism that demand for commodities and shipping will recover.

The Hang Seng gained 114.9 points to close at 13,178.90 this morning after China announced new stimulus measures, raising expectations the nation will be able to reaccelerate growth.

The FTSE 100 is currently 25.92 points lower at 4,202.68. BG Group tops the risers board, up almost 8%, following a 25% jump in fourth quarter net profit. Tui Travel gains 2.4% following a positive outlook and trading statement. Unilever tops the faller’s board down more than 5% after abandoning all its targets due to global economic uncertainty.

Economics
UK Bank of England rate announcement (Feb) 12.00 bst

The minutes from the January Monetary Policy Committee meeting suggested that the various members are keen to pause and await the fruits of their past labour. The minutes also pointed to a sudden anxiety around the decline in sterling. However, with renewed concerns over global financial stability and the further deterioration in business and consumer confidence, the need to ease the pressure on houshold and corporate income and stabilise the housing market is stronger than ever. A further 50bp rate cut in February is expected. Some have argued that the MPC might instead choose to focus on non interest rate, unconventional policies. HSBC question why it would not exhaust their primary (interest rate) option first, thereby avoiding the complications that surround the implementation of unconventional policy - such as funding any asset purchases and determining a price for illiquid assets.

EMU ECB rate announcement (Feb) 12.45 gmt

The ECB is set to keep interest rates on hold at 2 percent at its February meeting. This was practically pre-announced by ECB head Jean Clause Trichet at the January meeting, as well as in subsequent comments. Hence, this particular rate decision should already be priced into the markets thinking, placing the focus of attention firmly on the press conference. Mr Trichet is expected to refer constantly to the March meeting, when the new staff forecasts for Eurozone inflation and growth will be presented. Between the lines, the president is likely to point to another interest rate cut in March. HSBC economists currently expect a 25bp reduction in rates, but the move will depend a lot on the near term high frequency data - hence they doubt that Mr Trichet will commit to the size of the move. The ECB will keep open all options on alternative monetary measures. Also, they do exclude the possibility that ECB head Trichet implicitly points to the possibility of a smaller March interest rate cut, with some new alternative policy measures being announced in parallel.

US Non farm productivity (Q4) 13.30 GMT

Q4 non farm productivity is expected to rise by 1.5 percent. This assumes a 5.6 percent decline in non farm business output, with hours worked falling 7 percent (payrolls hours worked fell 7.7 percent). Assuming a 2.4 percent decline in compensation (+4.9 percent compensation per hour), unit labour costs are expected to rise 3.4 percent.

US Initial jobless claims (week Jan31) 13.30 gmt

Last weeks claims rose to 588,000 to 585,500 staying very elevated for the second straight week. The four week average rose to 542,500 fro 518,250. Initial claims are expected to be 560,000 this week. Continuing claims for the previous week could rise to a new cycle high 4.86m up from 4.78m.

US Factory orders (Dec) 15.00 gmt