Category: General

Dollar slips vs. euro, sterling; steady vs. yen
Greenback touches another record low against euro

By Lisa Twaronite, MarketClub
Last Update: 4:21 PM ET Nov 2, 2007

SAN FRANCISCO (MarketWatch) -- The dollar was lower against most of its major counterparts and touched a new euro low despite Friday's stronger-than-expected employment data, as continuing concerns about the U.S. financial sector weighted on the greenback.

The euro was trading at $1.4515, up from $1.4432 in late U.S. trading Thursday.

Earlier in the session, the European unit rose to $1.4527, a fresh high since the euro began trading in January 1999.

"As a trader you have to be long euros short dollars with a close like this on the weekend. Many traders are looking for the other shoe to drop in regards to losses" in structured investment vehicles and collateralized debt obligations, said Adam Hewison, president of INO.com, a technical analysis Web site.

"The euro/dollar is very close to our primary target of $1.4550," he added.

The pound sterling was trading at $2.0889, up from $2.0789 Thursday.

The dollar index, which measures the greenback against a basket of currencies, was down about 0.4% at 76.295. Earlier, the index touched a low of 76.242, which was its lowest level since the index was first compiled in 1973.

But the dollar was higher against its Japanese counterpart, buying 114.89 yen compared with 114.61 late Thursday.

Date from the Labor Department early Friday showed U.S. economy created 166,000 jobs in October, which was the best job growth since May and beat the 93,000 expected by economists surveyed by MarketWatch.

Some analysts said that the upbeat data increased rather than alleviated the pressure on the dollar.

"The payroll report is supportive for risk appetite, and therefore dollar-negative. It doesn't materially change [the] outlook for monetary policy, but does suggest growth hasn't faller off a cliff," said Steve Pearson, currency strategist in London for the Bank of Scotland Treasury Services.

A separate set of data from the Commerce Department indicated orders for U.S.-made factor goods rose 0.2% in September on higher gasoline prices. The headline figure also beat economists' consensus expectation of a 0.7% decline.

U.S. stocks shed early gains and sent investors scurrying into the perceived safety of fixed-income assets, but then seesawed between positive and negative territory in afternoon trading before closing higher.

A Wall Street Journal report the Merrill Lynch & Co. had engaged in deals with hedge funds to delay when it has to record losses on risky mortgage-backed securities heightened investors' worries about the financial sector. Merrill later denied the report.

Late int he session, Dow Jones reported that Citigroup, Inc. board members are expected to gather for an emergency meeting this weekend, citing two people familiar with the matter. It wasn't immediately clear what the meeting would address, but the subject of further write-downs could come up, the report said.

Carry trades weigh on yen

Japan's currency remained under pressure due to interest rate differentials.

At 0.5%, Japan's benchmark is the lowest in the developed world. The makes it popular for carry trades, in which global investors borrow lower-yielding currencies to invest in high-yielding assets.

Before the meltdown of the U.S. subprime mortgage market, many analysts had expected Japan's central bank to raise rates in August, with another hike expected to follow within the fiscal year. But following the summer's credit crisis and the U.S. Federal Reserve's easing in response to it, Japanese policy makers have opted to stand pat.

The likelihood that the Bank of Japan will raise rates in Japan's fiscal year, which ends in March, fell to about 50% on Friday, the Nikkei reported in its Saturday edition, citing a market gauge based on overnight trading of index swaps.

Meanwhile, both the European Central Bank and the Bank of England are expected to hold interest rates steady at their policy meetings next week.

"With no cuts on the horizon and a slumping dollar, the euro should move to new heights," wrote analysts at BMO Capital Markets.

"The BoE should remain on hold for a fourth month in November, as the economic data have yet to point to a slowdown," they added.

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Lisa Twaronite reports for MarketWatch from San Francisco

*MarketWatch is trademarked and belongs to the Dow Jones, Co.

U.S. stocks to extend losses next week
Turmoil on Wall Street, Citi, to take toll

By Carly Mozee, MarketWatch
Last Update: 7:00 AM ET Nov 3, 2007

SAN FRANCISCO (MarketWatch) - U.S. stocks will extend their losses next week as concern over poor earnings, oil nearing $100 a barrel, and more turmoil in the banking and brokerage industries promise to rock Wall Street for a second week, with Citigroup, Inc. at the center of the action on Monday after an emergency weekend board meeting.

The market's attention is poised to stay trained on the financial sector after the group suffered its worst week in years as Merrill Lynch & Co.'s (MER: 56.00, -1.28, -2.2%) chief executive was forced out and Citigroup's (C: 35.82, -1.91, -5.1%) board prepared to decide whether to accept the resignation of CEO Chuck Price as well.

"The market is obsessed with these credit problems. People feel like they're standing in a mine field and they don't know where all the mines are," said Brian Gendreau, investment strategist at ING Investment Management. "We're looking for an opportunity to go back into equities. I just don't think next week is going to be the time. There's still just too much uncertainty."

The unraveling of the subprime mortgage crisis on Wall Street shook the financial service sector and much of the stock market during the past week, with uncertainty about the extent of losses in the collateralized debt obligations business locking up many of the global credit and derivatives markets.

Earnings worse then expected

The worsening state of quarterly results from Corporate America may pull stocks lower as well, with a 1.6% decline in earnings, down from a 1% decline last week, according to data from Thomson Financial. Investors will assess results next week from Cisco Systems Inc. (CSCO: 33.08, +0.54, +0.9%), General Motors (GM: 36.10, -0.89, -0.1%), oil firm Total SA (TOT: 78.79, -0.43, +0.5%), American International Group (AIG: 59.66, +0.54, +0.9%) and Walt Disney Co. (DIS: 33.94, +0.02, +0.1%).

Also to come will be Federal Reserve Chairman Ben Bernanke's congressional testimony on the outlook for economy, monthly sales figures from retailers, and the first look at consumer sentiment in November heading into the all-important holiday shopping season.

News from Citigroup could be a highlight of the new trading week, with the board of the country's largest bank expected to hold an emergency meeting this weekend, The Wall Street Journal reported late Friday. CEO Charles Prince is expected to offer his resignation, and the subject of more write-downs could be part of the discussion, according to the Journal.

Last month, the compnay reported a 57% drop in third-quarter profit after billions of dollars in write-downs related to the trouble credit markets.

Wall Street could also find itself weighed down by a further climb in commodity prices, particularly crude-oil which jumped 4.4% this week and closed above $95 a barrel on Friday.

"The all-important $100 level [for oil prices] may be a psychological breaking point for investors," said Michael Sheldon, chief market strategies at Spencer Clark, LLC.

The market found pockets of strength this past week, notably after the Federal Reserve delivered a widely expected quarter-point cut in its key interest rates to edged higher with help from Google, Inc. (GOOG: 725.65, +14.40, +2.0%) as it surpassed the $700-a-share level for the first time.

But the dismal news form the financial sector and quarterly profit misses at oil giant Exxon Mobile (XOM: 87.90, -0.03, 0.0%) and Chevron Corp. (CVX: 88.70, +0.22, +0.3%) contributed to weekly losses in the Dow Jones Industrial Average (DOW: 13,543.40, -51.70, -0.04%) and the S&P 500 ($SPX: 1,502.12, -7.48, -0.5).

"Holders of U.S. equities are nervous and holding on by their fingernails. There is going to be little or no good news coming any time soon," wrote Adam Hewison, president of INO.com, a technical analysis Web site.

Financial frets

Key indicies that track the financial group suffered heavy losses this week. The Amex Securities Broker/Dealer Index (XBD: 213.95, -6.00, -2.7%), which includes Merrill Lynch, dropped 5.6% and the KBW Bank Index ($BKX: 95.68, -0.86, -0.9%), which tracks 24 leading banks, fell more then 6%.

Gendreau said the unfolding impact of the credit market mess on the sector have sparked speculation about whether firms are withholding bad news or "if the firms themselves know the extent of the damages."

In addition to troubles at Citigroup and Merrill Lynch, investors grappled with Swiss bank UBS Ag's (UBS: 47.60, -1.67, 3.4%) report that its investment-bank segment took about $3.6 billion of write-downs due to subprime mortgage exposure, and the filing of a lawsuit by the New York Attorney General against a unit of First American Corp. The firm was accused of "colluding" with Washington Mutual Inc. (WM: 23.21, -0.06, -2.5%) to inflate the appraisal value of homes.

Earnings and economic reports

About 50 companies on the S&P 500 Index are scheduled to report results next week, including KKR Financial Holdings (KFN: 15.02, -0.05, -0.3%), Total SA (TOT: 78.79, 0.43, -0.5%), Revlon (REV: 1.13, -0.01, -0.9%), Time Warner Inc. (17.86, -0.02, -0.1%) and News Corp. (NWS: 22.03, -0.30, -1.3%), which is acquiring Dow Jones & Co. (DJ: 59.65, -0.02, 0.0%), parent of MarketWatch, the publisher of this report.

"Earnings estimates this quarter and next and looking towards 2008, are not particularly positive," said Owen Fitzpatrick, managing director or private wealth management at Deutsche Bank.

Of the 388 companies that have already posted results for the third quarter, 65% have beat analysts' targets, 13% have matched and 22% have missed, which is closely in line with past performances.

But dig deeper and investors will find the results that have come in better than estimates are only beating them by 0.2%, said John Butter at Thomson Financial.

In terms of economic reports, the ISM Services report is due Monday and the University of Michigan's consumer sentiment survey will arrive Friday.

Monthly sales from retailers will be released throughout the week.

The same-store sales estimates for October is for a 2.3% gain in October, down from growth of 3% last year, according to Thomson Financial, as the majority of the sectors tracked continue to report weaker compared with the year-ago period. Thomson's October same-sales report will be released Thursday.

"As we head into the upcoming months, it will be very interesting to see the extent to which the [same-store sales indicies] continue to recover for the holiday season," said analysts as Thomson.

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Carla Mozee is a reported for MarketWatch in San Francisco

*MarketWatch is trademarked and belongs to Dow Jones News, Corp.

Dollar likely to drop no matter what Fed does
Greenback to stay under pressure whether the Fed cuts a lot, a little or not at all

By Lisa Twaronite, MarketWatch
Last Update: 5:20 PM ET Oct 30, 2007
SAN FRANCISCO (MarketWatch) -- As analysts ponder the U.S. Federal Reserve's next move on interest rates, currency investors ponder the likely market reaction, and the consensus for both is that it's a matter of degree, no direction.

Just as no one is expecting an interest rate high Wednesday, no one is betting on a sustained dollar rally this quarter, either. And just as bad economic or corporate headlines -- or even record-high crude oil prices -- rarely seem to derail stock market rallies these days, nothing the Fed delivers is likely to halt the greenback's slide.

Whether the Fed cuts its benchmark a quarter percentage point, as expected, or a half-point -- or even not at all -- the dollar is likely to bear the near-term brunt of the market's kneejerk reaction either way, and then move in one direction: down.

Regardless of whether or not the Fed cuts rates, "the dollar is in for a beating," said Marilyn McDonald, marketing director at Interbank FX.

"The U.S. dollar is finally in trouble. For quite some time now, it has been onof the top five yielding currencies among the [Group of 10 industrialized] nations, which is why it has been used in the carry trade for so long," she said.

Carry trades involve borrowing lower-yielding currencies, such as the yen, and investing it in high-yielding assets. The dollar has long benefited from such trades, but the benefits are dropping in line with U.S. interest rates.

"While this doesn't mean it has a bright future as a funding currency -- that will only happen if it drops into the 3% range -- it does mean that the carry trade is in trouble," said McDonald.

No cut?

Many economists and investors are betting that the Federal Open Market Committee will lower the target on the federal funds rate to 4.5%, down from 4.75% currently, and a few are betting on a large cut to 4.25%. Read story on Fed meeting outlook.

But Wall Street Journal Fed watcher Greg lp suggested that central bankers may not cut interest rates at all on Wednesday, contrary to market expectations lp said inflation concerns persisted, especially when the dollar's recent weakness.

"The behavior of financial markets implies near certainty by investors of a quarter-point cut in the Fed's key short-term interest rate," wrote lp. "But for policy makers, the decision is between the quarter-point reduction and no cut at all."

Since the lower rates erode the returns on dollar-denominated assets, all things being equal, the dollar should theoretically benefit if rates stayed steady. But all things are not equal, and the dollar would probably drop if the Fed stands pat.

"No cut would be a shock and be viewed as a negative for the dollar," said Meg Browne, senior currency strategists at Brown Brothers Harriman.

"The Fed would be seen as not proactive especially given warning that [the forth quarter] was likely to slow. Expectations for a 50 basis-point cut would shift to the next meeting in December. The dollar would likely sell off and stay sold off, " she said.

"We don't expect the dollar's downtrend to come to an end until sometime in [the first quarter] when the U.S. economy shows signs of stabilizing," she added.

Shortcovering possible

Tuesday afternoon, the euro touched a fresh record high of $1.4440 against the dollar since the European unit began trading in January 1999.

The euro is now testing strong resistance between $1.4500 and $1.4545, the latter being its all-time high based on the Deutschemark's record high before the European nations united behind a single currency, according to BNP Paribas technical analyst Andre Chaveriat.

The euro "has scope to reach $1.4500 or $1.4545 to $1.4600 with an 'as-expected' 25 basis point cut, and if they surprise with a 50 basis point cut, we could see $1.4700 to $1.4750, " he said in emailed comments.

Other technical analysts, even those who believe the dollar's downtrend is intact, did not rule out a brief dollar rally after Wednesday's Fed announcement. If the dollar doesn't fall as much as some investors expected, those who bet on a plunge might be forced to buy back the dollar to cover their short positions.

"We expect to see the dollar remain under pressure until the Fed announces, " predicted said Adam Hewison, president of INO.com, a technical analysis Web site.

"I think this could be a case of buy the rumor/sell the news. In this case it would be sell the dollar then cover when the Fed announces, " he said.

"We are close to our $1.450 euro/dollar target zone and like any good player it pays to take some chips off the table," he said.

Lisa Twaronite reports for MarketWatch form San Francisco.

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*MarketWatch is a registered trademark and belongs to the Dow Jones Companies

China is red hot right now, but could a correction be in the near future?

Adam Hewison, of INO.com, and Zachery Karabel, of
Fred Alger Mgmt., share their insight.

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Excerpt from show...

Burnett: “So Adam, this sounds very rational out of Zachery, but your saying we're not just talking about any old correction. We're talking about something very soon and very large...”

Hewison: “When we look at the market on a technical basis and we've been tracking the FTSE/Xinhua China 25 Index (FXI), which is the main index over there, for quite sometime and it charts beautifully. It actually is quite predictable. We're looking for a high this market, we had, actually its great to be on the show today because we hit a new high over 30,000. But we're looking for the market to possibly trade as high as 33,000 and then we're looking for a 20% correction. I'm not going to disagree with Mr. Buffet, he's one of the best investors around in the history of the world. And, he's skeptical and I'm skeptical too."

Burnett: “And your saying 20% in China means at least 10% as a result here in the U.S. Market?”

Hewison: “That's how it's worked in the past, we've seen a 20% correction In China; we've had three 20% corrections that we can track and each time it has meant a, uh, the last one was about a 10% correction in the U.S. So I'm guessing that's what's going to happen here.

Burnett: “So Adam let me ask you... I was just looking here at my screen at things that were up more than were up more than 5% today, John Deer was up, Goldman Sachs was up and then this thing FXI was the ticker which happens to be the FTSE/Xinhua China 25 Index, and that's the way you would trade this and I guess you would go short that?”

Hewison: “I wouldn't go short. I mean a 20% decline... I wouldn't want to sit through a 20% decline, no one, no investor does. But I think if you're an intermediate term trader you may want to take some chips off the table now with this FXI index, which is the best way I believe to trade the China trade.”

Burnett: “Alright so take some money off the table there.”

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