US MORNING BRIEFING: Futures Down On Bond Insurer Fears

Last Update: 1/31/2008 6:38:42 AM

DJIA Futures 12,349.0 -45.0 -0.4%
S&P 500 Futures 1346.1 -4.5 -0.3%
Nasdaq Futures 1801.5 -10.0 -0.6%
Above are as of 0610 ET

FTSE 100 5787.6 -49.7 -0.9%
Xetra DAX 6787.6 -87.8 -1.3%
CAC40 4829.2 -44.4 -0.9%
Above are as of 0557 ET

Nikkei 225 13,592.5 +247.4 +1.9%
Hang Seng 23,455.7 -198.0 -0.8%
Above are closing prices

SNAPSHOT:

-U.S. stocks seen lower; Treasurys seen broadly higher; Brent crude lower; Gold
lower.

-Watch for jobless claims, December personal income and fourth-quarter employment
cost index at 0830 ET; Chicago PMI at 0945 ET; business barometer at 1000 ET;
U.S. Energy department natural gas inventory at 1030 ET; money supply at 1630 ET.

-Dollar higher; Bunds, gilts higher.

-Euro-Zone January CPI hits new high of +3.2% on year; Euro-Zone consumer
confidence slumps in January; Euro-Zone jobless rate steady at 7.2% in December;
EU’s Juncker: U.S. recession spillover to European economy limited.

U.S. MARKETS OUTLOOK:

Stock futures are indicating a moderately lower open on Wall Street, as fears of
downgrades for bond insurers continue to sour sentiment, according to
spreadbettors in the U.K.

“Confidence has dissipated as concerns grow over the huge losses incurred by the
likes of MBIA,” said David Buik of Cantor Index.

Investors are likely to look to jobless claims and personal income at 0830 ET,
and business barometer at 1000 ET for further direction.

At 0610 ET S&P 500 futures were down 4.5 points at 1346.1, Nasdaq 100 futures
were 10 points lower at 1801.5 and the Dow industrial futures were off 45 points
at 12,349.

EQUITIES:

Bond insurer MBIA Inc. (MBI) plummeted 19.3% in Frankfurt after reporting its
second consecutive quarterly net loss late Wednesday, as write-downs in its
credit derivatives portfolio rose to $3.5 billion. The company posted a
fourth-quarter net loss of $2.3 billion and announced that it had closed on its
$500 million stock sale to private equity investor Warburg Pincus.

Amazon (AMZN) stock plunged 11% in late trading and has fallen 12.8% in Frankfurt
after the online retail giant issued a below-par operating income forecast
following the closing bell and despite reporting fourth-quarter net income more
than doubled.

Meanwhile, Novellus shares lost ground in after-hours trading, as the company
announced a disappointing first-quarter revenue outlook. Its stock in Frankfurt
is currently down 7.1%.

Google (GOOG), which has lost more than a fifth of its market value in the past
month, is set to report earnings Thursday. Investors also are keenly awaiting
updates from Marathon Oil Corp. (MRO), Procter & Gamble (PG), Bristol-Myers
Squibb (BMY) and Colgate Palmolive (CL).

FOREX:

The dollar is mostly higher in Europe Thursday as risk aversion slides a little
further in the wake of the Fed’s decision to cut interest rates another 50 basis
points.

At 0558 ET, the dollar was up at Y106.48 from Y106.38 late Wednesday in New York,
while the euro was down at $1.4860 from $1.4881, despite data showing that
euro-zone consumer prices rose 3.2% in January on the year. The pound was at
$1.9928 from $1.9915.

BONDS:

U.S. Treasurys are expected to open broadly higher in New York, extending gains
made after the Fed 50-basis-point rate cut Wednesday and supported by safe-haven
flows on heightened concern about the health of major bond insurers. In early
London trading, the yield spread between the two-year and 10-year Treasury notes
briefly widened to 150 basis points. The two-year note is unchanged at 99 30/32,
to yield 2.16%, with the 10-year note up 2/32 at 104 29/32, to yield 3.65%, and
the 30-year bond up 1+/32 at 110 10/32, to yield 4.372%.

Spreads on European credit derivatives indexes are wider Thursday as worries over
monoline bond insurer ratings and banks’ subprime exposure erase any lingering
relief that the Fed delivered its expected 50-basis-point rate cut. The Markit
iTraxx Crossover was quoted at 467/469 basis points, against a Wednesday’s close
of 451 basis points. Bearish monoline and subprime newsflow overnight included
Fitch cutting FGIC’s AAA rating to AA, MBIA reporting its biggest ever quarterly
loss, and S&P downgrading or putting on watch negative more than $500 billion of
subprime and CDO securities.

COMMODITIES:

Crude oil futures trade around $1 lower as falls on equity markets continue to
channel fears over economic outlook. The oil market is eyeing further macro
indicators. “The cut from the Fed was no surprise and the (US) employment number
tomorrow should be the leading directional input,” says Olivier Jakob of
Petromatrix. The market is also digesting Wednesday’s news of builds in U.S.
crude and gasoline stocks, while looking ahead to the OPEC meeting Friday, which
is broadly expected to result in unchanged output levels. Nymex March is down 93
cents at $91.40 a barrel, while ICE March Brent is down 81 cents at $91.72 a
barrel.

Gold is lower but consolidating after the Fed’s 50-basis-point rate cut
overnight, although “in the context of a weak dollar environment,” further gains
are anticipated, a trader says. The trader notes that the fresh record high in
spot gold overnight was largely unwound by the end of the U.S. session amid high
volume trade, suggesting a lot of U.S.-based investor activity. “The sentiment is
that the dollar has got more downside potential and that will help gold extend
gains,” he says. At 0536 ET, spot gold traded at $923.40 an ounce, down 1.4% from
its record high of $936.95 an ounce in New York Wednesday, while silver was at
$16.725, down 1.1% from Wednesday’s high.

=======TODAY’S CALENDAR=======

ET COUNTRY/ PERIOD
0830 US Jan 26 Jobless Claims
0830 US 4Q Employment Cost Index
0830 US Dec Personal Income
0945 US Jan Chicago PMI
1000 US Dec Conference Board Help-Wanted Index
1000 US Jan 19 DJ-BTMU Business Barometer
1000 US FDIC Chairman Bair, Tsy Undersecretary Steel participate
in a hearing on the economy and mortgage foreclosures
before the Senate Banking Committee
1030 US Jan 25 US Energy Dept Natural Gas Inventory
1030 US Tsy Secy Paulson holds press conference on the Earned
Income Tax Credit in Washington
1100 US Jan Kansas City Fed Mfg Index
1630 US Money Supply
N/A US Jan Motor Vehicle Sales

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