Today's Business News - Jan-15-09

By The Greek - Economy & Markets:

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

Today's business news highlights: the ECB's rate cut; heavy post holidays job cuts; Apple's Jobs' takes sick leave; PPI shows core prices sticky; RBC sentiment measure sours; NY & Philly area manufacturing sluggish; 2008 foreclosure count; JP Morgan sees loss; Bank of America may need more money; UBS ordered to return Madoff funds; PMs of Ukraine and Russia plan meeting; natural gas storage data; Japan posts tough economic data.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

Overseas Markets

Asia was roiled today by a weak economic report issued in Japan. Economists' expectations were horribly off, as Japanese machine orders dropped the most in 21 years. November orders contracted 16.2% on a monthly basis, offering statistical confirmation of anecdotal signs seen from Sony (NYSE: SNE), Panasonic (NYSE: PC), Toyota (NYSE: TM) and Nissan (Nasdaq: NSANY). The news affected the entirety of Asia, as Japan remains the second most important economy in the world.

Asia:

1. MSCI Asia APEX 50: -4.72%


2. Japan NIKKEI 225: -4.92%


3. Hong Kong Hang Seng: -3.37%


4. China CSI 300: -0.02%


5. India BSE SENSEX 30: -3.46%

Europe:

1. DJ Euro STOXX 50: -1.77%


2. UK FTSE 100: -1.42%


3. France CAC 40: -1.84%


4. Germany DAX: -1.94%

(Prices as of hour of publishing, which may not be the close)

Economic Data Analysis

Weekly Initial Jobless Claims
In this week's "Week Ahead," we speculated that recent weekly jobless claims improvement were very likely affected by the holiday season (read warm hearts). This morning, the new claims report for the week ended January 10, which represents the first full week post holidays, showed new claims filers jumped back up to 524K. This week's tally exceeded both the consensus view for 500K and the prior week's revised sum of 470K. Still, due to recently lower results, the four-week moving average declined by 8,000, to 518.5K.

The highest insured unemployment rates in the week ending Dec. 27 were in Oregon (7.4%), Michigan (6.6%), Idaho (6.3%), Wisconsin (6.0%), South Carolina (5.4%), Arkansas (5.3%), Nevada (5.2%), Pennsylvania (5.2%), Indiana (5.1%), and Montana (5.1%). The largest increases in initial claims for the week ending Jan. 3 were in New York (+24,465), North Carolina (+19,749), Georgia (+18,308), South Carolina (+14,905), and Virginia (+7,362), while the largest decreases were in California (-14,796), Kansas (-13,313), Michigan (-11,956), Illinois (-9,727), and Ohio (-7,499).

We expect the weeks to come will take January and February layoffs above those seen in December. The auto sector, which is now under the gun to save cash, will likely lead job consolidators again this month, but we expect the retail industry to join construction as close runners up. In February, we expect a mass purging of retail jobs to begin.

Producer Price Index (PPI)
December's Headline PPI followed anticipated trend as it declined by 1.9%, but it missed the extent of expected decline slightly as consensus sat at 2.0%. However, Core Prices, or those excluding food and energy goods, were expected to rise 0.1%, but increased 0.2% month-to-month. The message we take out of the report is that prices are generally sticking close to the high water marks set when the commodity bubble pushed all things higher. This month's price change on the headline figure was still greatly influenced by energy price ease, which measured -9.3% in December.

NY & Philly Manufacturing
Both the Philly and New York area manufacturing environments improved based on this month's measurement, but with both index readings stuck in negative territory, the reports offered little good news for current activity. The Empire State Manufacturing Survey came in at negative 22.2 this month, improved from negative 25.8 in December. The Philly Fed Survey's Diffusion Index of Current Activity improved this month to -24.3, from -36.1 in December. Both market reports noted generally depressing sentiment among participants. While both surveys produced poor employment expectations for the months ahead and lower prices paid for production inputs and offered for their own products, they differed in that the Philly region query showed some hope for the future. Generally though, one should not take these reports as good news.

Foreclosure Tally
RealtyTrac produced its 2008 U.S. Foreclosure Market Report today, noting an 81% increase in foreclosures. Nearly 3.2 million filings were counted on over 2.3 million properties. The real estate information tracking and services firm produces a report each month, and foreclosure filings have been improving on a monthly basis until December. Fourth quarter activity actually declined versus Q3, but December raised concern as activity increased 17% over November. Some 1.84% of all U.S. housing units received at least one foreclosure filing last year, up from 1.03% in 2007. Nevada, Florida and Arizona posted the highest foreclosure rates nationwide.

RBC Cash Index
RBC's sentiment measure set a six-year low, reaching a mark of 13.3, versus December's 15.3. For those who find a ray of sunlight even in a hurricane, the reports' Expectations Index improved in January to -11.3, from -21.2. Negative still sucks, but the report's producers attribute it to hope tied to the entry of the Obama Administration.

Corporate News Drivers

Apple's Jobs Takes Leave
Last evening, Apple Inc. (Nasdaq: AAPL) CEO Steve Jobs sent a letter out to the company's employees. Jobs indicated he would take a medical leave of absence due to new developments regarding his illness. His leave is anticipated to last until July, leaving Tim Cook in charge of day to day operations. Jobs stated he would remain involved in strategic decision making despite his time off.

Apple trades at a valuation premium to peers like Microsoft (Nasdaq: MSFT), and much of that is rightly attributed to the value-add Steve Jobs presents. Thus, today, the stock is off 4.8% at the hour of publishing.

J.P. Morgan Reports Loss
J.P. Morgan (NYSE: JPM) issued a news release this morning, stating the bank expected to post a 76% lower profit in Q4. This anticipation included a one-time gain and gains related to risk management efforts (perhaps hedging activity). Excluding those gains, the company noted it would lose about $0.28 per share. JPM was fractionally higher through midday, as the consensus estimate was for neither loss nor gain. Analysts might incorporate "risk management efforts" into an investment banks' operating results, but now that JPM is a bank we might argue these gains shouldn't be included. Thus, JPM's results should perhaps present a disappointment to the Street today. Even so, the general feeling among investors is that JPM has offered better performance than peers in navigating this tough environment, and financial sector allocated capital has to flow somewhere.

Bank of America Needs Capital
A source in the know, though unknown to us, indicated that Bank of America (NYSE: BAC) is facing a tough Q4 thanks to its Merrill Lynch acquisition. As a result, the company has reportedly been speaking with the Treasury Department since December. While the first set of TARP funds are gone, new fund distribution is under debate, and BAC looks at the front of the line for another handout.

The TARP debate looks tough at the moment, so without a clear plan for new capital usage and oversight, and penalty risk for Secretary-Nominee Geithner, we can't see it Congressional approval. If BAC is desperate, the shares may be in for tough going in the near-term, and we would avoid them. BAC is smartly down 20% today.

UBS Ordered to Return Madoff Dough
Contrary to expectations on the ground in the U.S., UBS (NYSE: UBS) has been ordered by a Luxembourg court to turn over 30 million euros invested in a UBS fund that had invested it in Bernie Madoff's ponzi portfolio. The investor of those funds had requested them in November, before Bernard was arrested, and never received them. While any profits garnered are expected to be demanded returned by U.S. or European courts, we suppose this investor has a case for now. However, investors who lost principal will likely be repaid some fractional portion by false profits paid out. This is getting messy...

Today's Earnings Reports
Thursday's earnings schedule includes Amphenol (NYSE: APH), AEP Industries (Nasdaq: AEPI), ASML Holdings (Nasdaq: ASML), Bank of the Ozarks (Nasdaq: OZRK), Briggs & Stratton (NYSE: BGG), Capital Product Partners (Nasdaq: CPLP), CRA Int'l (Nasdaq: CRAI), Genentech (NYSE: DNA), Home Bancshares (Nasdaq: HOMB), Intel (Nasdaq: INTC), Marshall & Isley (NYSE: MI), POSCO (NYSE: PKX), Sealy Corp. (NYSE: ZZ), Shaw Communications (NYSE: SJR), Shuffle Master (Nasdaq: SHFL), Simmons First National (Nasdaq: SFNC) and Westamerica Bancorporation (Nasdaq: WABC).

Commodities, Currency and Other

After rising on recent Saudi production noise, oil prices are tumbling below $35 today as the reality of economic catastrophe takes the driver's seat again. It's an amazing feat as well, considering the bitter cold biting down on America today. This is a sign to traders who are long crude that it's still too early. Only conflict in Iran or the pending impact of OPEC production cuts will turn oil around, and both of those may not be far off in the horizon. Still, it's quite risky to be long crude here this week. Reported today, working natural gas in storage saw a net draw last week, declining 94 Bcf, but this didn't disturb oil traders one bit. In fact, even natural gas futures declined today.

Geopolitical and Global Affairs

ECB Rate Cut
The ECB cut its target rate for the main refinancing operations of the Eurosystem by 50 basis points today, to 2.0%. Despite all the fuss Jean-Claude Trichet raised over recent months, relentless economic decline necessitated another dramatic cut. The ECB has cut by a total of 225 BPS since October 8th. The ECB noted inflationary pressures are diminished due to a weakening economic outlook. Trichet expects inflation to keep in line, and sees medium term price risk "broadly balanced."

The ECB noted economic turmoil has broadened beyond the financial sector. European export demand has declined as well thanks to global softening. Trichet noted ongoing weakness seen through the coming quarters.

PMs of Russia, Ukraine Plan Meeting
Under great pressure from Europe, the Prime Ministers of Russia and the Ukraine will meet in Moscow on Saturday to work on resolving their natural gas row. Even after supposedly reaching accord this week, implementation has been controversial so that gas is not adequately reaching European users as yet. EU representatives refused to meet with Russia (by Russia's request) unless Ukrainian representatives were also present. Russia appears to be purposely finding ways to impair the Ukraine and Southeastern Europe. Germany's Chancellor Angela Merkel has openly stated that these ongoing problems threaten long-term trust in Russia.


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