Morning Report
World equity indices are higher across the board this morning as FED Chairman Bernanke signaled the FOMC will cut rates at their December meeting. Though he mentioned inflationary pressures remained, Bernanke emphasized tightening financial conditions could potentially damage the real economy. Recent FED speakers have bolstered Street expectations of a 25bps cut in the FED Funds rate, but after Bernanke’s speech, expectations have been for a 50bps cut.
The Nikkei gained over 1% on Bernanke’s comments and encouraging economic data. Japanese CPI turned positive for the first time since December 2006 and the unemployment rate halted its upward climb. The JPY gave back some of its gains as carry trade picked up steam. USD/JPY is currently trading over 110.
European indices picked up strength on the heels of Bernanke’s comments as well, with the DAX up nearly 1.5% and the FTSE up over 1%. Also, European government bonds are set for their strongest month since February 2004. The German 10-yr. is up 3bps to yield 4.087% while the 10-yr. Gilt is up 5bps to yield 4.614%. EUR/USD is currently at 1.4759 while CABLE has advanced to 2.0652.
The Wall Street Journal is reporting Citigroup, Wells Fargo, Washington Mutual, and Countrywide are close to a voluntary agreement that would freeze interest rates on select subprime mortgages and prevent them from resetting. The Treasury took an active role in these talks, which are a part of Secretary Paulson’s HOPE NOW initiative to contain the fallout from the subprime mess.
In commodities, oil fell below $90/barrel for the first time since October after Enbridge announced their pipelines will be fully operational within days. Also, expectations of OPEC increasing production at next week’s meeting have eased supply concerns.
Currently, U.S. equities look to be headed for a strong start with Dow Futures up 140 and S&P Futures up 17.25. Today’s economic releases include PCE inflation data from Commerce at 8:30am, expected to be unchanged at 0.2%. At 9:45am, we’ll be bringing you November Chicago PMI data, expected to be 50.5 after an October reading of 49.7. October Construction Spending data is due out of Commerce at 10:00am and is estimated to be -0.3% versus a prior reading of 0.3%. There are also two FED speakers this afternoon; FED Governor Randall Kroszner will be speaking in Philadelphia at 1:40pm, and St. Louis FED President William Poole will be speaking in Washington, DC at 4:00pm.