Earnings Continue To Dominate Equity Markets

Current Futures: Dow +24.00, S&P +3.00, NASDAQ -4.25  

European Trade: Asian shares closed the trading day much lower, while European stocks and U.S. futures are currently trading mixed. In the last few days, the equity markets have been affected by very poor economic data, which will probably continue as the world economies are heading towards a recession.

Stocks fell in Asia on concerns that earnings forecasts will continue to disappoint, now that the export industry looks to have a hard period ahead. The Nikkei fell 456.87 points (5.25%) to 8,238.64, touching a two-week low. In Australia, the S&P/Asx slipped 230.00 points (5.86%) to 3,697.30, falling near a 4-year low. Australian stocks fell, dragged lower by financial and raw material companies. In Europe, the FTSE is down 21.76 points (0.52%) to 4,160.26, while the German Dax posted a minimal gain of 4.16 points (0.09%) to 4,624.96.

The only thing that is keeping the equity markets within reaching distance of the break-even line in Europe are speculations that the central banks will intervene again, and cut the key interest rate. Almost all central banks are expected to cut in the upcoming meetings, in order to support the fading economies. However, the high rates seen in commercial papers, especially on debt issues by private corporations show that banks are in no hurry to pass the liquidity onto the market. Even though the LIBOR rates keep falling lower and lower, the spread, compared with the overnight rates, are still huge proving the market is still in a high alert phase.

Crude oil is trading under the $60 dollar benchmark, near a 21-month low. Crude oil for December delivery fell $0.83 (1.48%) to $55.33.

Gold extended the declines seen lately, on dollar strength. Bullion for immediate delivery declined $2.00 (0.28%) to $716.30.

Previous Asian trade: Equity markets are trading in the red again, after the U.S. Treasury plans to spend half of the bailout amount on consumer credit. Markets were also sent lower after two major companies announced lower earnings forecast.

Mr. Paulson said yesterday that the remaining $350 billion left in the bailout plan would be used on consumer credit lines, because this is the next thing that post significant risks for the economy. The initial $700 billion were planned to be used to buy illiquid assets from bank’s balance sheets, but now it seems those assets have suddenly became liquid (which is not likely, given the market tensions) or the illiquid assets unexpectedly disappear. Who knows, maybe someone stole them? I heard the recycled paper used for the mortgage-backed market worth more than their intrinsic value…

Now, most analysts bet that the initial sum required for the bailout plan will not be enough, especially when the list of pretenders widens. It is said that the U.S. auto-industry may require $30 billion in loans, but adjusting from the trend seen recently, chances are this sum will get larger in time. As this was not enough, both Intel and Best Buy cut their earnings forecasts on significant consumer slump.