advertisement
Article Tools
| Currency | US Dollar |
|---|---|
| British Pound to US Dollar | 1.633720 |
| Euro to US Dollar | 1.398406 |
| Japanese Yen to US Dollar | 0.010414 |
| Canadian Dollar to US Dollar | 0.861846 |
The government is hoping that major moves announced Sunday will give investors more confidence in mortgage companies Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) and head off a potential meltdown in global financial markets.
The Treasury Department and the Federal Reserve on Sunday unveiled sweeping steps to support the troubled companies that own or guarantee nearly half the mortgages in the United States.
The Fed said the companies could access its discount window for emergency cash -- which could mean a major escalation in U.S. taxpayer exposure.
Separately, the Treasury said that it would temporarily increase its line of credit to the two, as well as purchase equity in them, if needed. A senior Treasury official told reporters all the actions it proposed need Congressional approval, but he was confident that could be secured within this week.
The government's moves came after a volatile day of trading Friday that saw the Dow Jones industrials finish down 128 points and briefly fall under 11,000 for the first time since 2006.
Trading in U.S. stock index futures suggested a stronger open Monday for the U.S. stock market. But stock markets in Asia moved lower.
The dollar was higher, and light, sweet crude oil was down 49 cents a barrel to $144.59 early Monday in electronic trading.
Sunday's announcement echoed the government's emergency action to help rescue investment bank Bear Stearns in March, when it opened the discount window to investment banks for the first time since the Great Depression.
Bear Stearns merged with JPMorgan Chase (JPM, news, msgs).
Continued strength in Fannie Mae and Freddie Mac "is important to maintaining confidence and stability in our financial system and our financial markets," Treasury Secretary Hank Paulson said in a statement that he read on the steps of the Treasury building in Washington, D.C. "Therefore, we must take steps to address the current situation as we move to a stronger regulatory structure."
Separately, Anheuser-Busch (BUD, news, msgs) agreed to be bought Sunday by Belgian brewing company Inbev (BE:INB, news, msgs) in a deal valued at $52 billion, or $70 a share. The deal would create the world's largest brewing company. The name would be Anheuser-Busch Inbev.
Fear rules markets on Friday
The concern on Friday was that a failure of either Fannie Mae or Freddie Mac could seize up the U.S. mortgage market with reverberations around the world.The Dow finished down 1.1% to 11,101, its lowest close since July 27, 2006. The blue-chip index briefly fell under 11,000 for the first time since July 21, 2006. It was down as many as 251 points and up as many as 12. The Standard & Poor's 500 Index was off 14 points, or 1.1%, to 1,239, and the Nasdaq Composite Index was off 19 points, or 0.9%, to 2,239.
While Sunday's announcement may help boost U.S. stocks, it's not a slam dunk because soaring oil prices have also been a big factor pushing stocks lower. While crude was lower in overnight trading, many analysts believe oil could hit $150 for the first time this week. "What could stop it?" analyst Peter Beutel of Cameron-Hanover asked on Friday.
Crude closed at $145.08 on the day, up 2.4% from Thursday, after hitting a new intraday high of $147.22. Crude is up 51% this year and has pushed the national retail price of gasoline over $4 a gallon.
Sunday's developments come as the second-quarter earnings season kicks into high gear with reports due from several important -- and troubled -- financial companies including Citigroup (C, news, msgs) and Merrill Lynch (MER, news, msgs).
Fannie Mae and Freddie Mac shares fell 45% and 47% last week, respectively, on worries that they didn't have enough capital to withstand the housing crunch.
On Friday, Fannie Mae was down 22.3% to $10.25, and Freddie Mac was off 3.1% to $7.75. Early in the session, both stocks were down more than 49%. They've lost 75% of their value this year.
Meanwhile, concern continued to build about investment bank Lehman Bros. (LEH, news, msgs), which many analysts believe will be sold in the not-too-distant future.
The stock, which had been down 23%, recovered to a loss of 16.6% to $14.43.
The mortgage meltdown has already claimed financial companies including Countrywide Financial -- merged into Bank of America (BAC, news, msgs) -- and Bear Stearns.
Fannie and Freddie are both listed on the New York Exchange, but they were originally started by the federal government to provide mortgage capital for housing. They are now so big -- owning or guaranteeing some $5 trillion in outstanding U.S. mortgages, or nearly half of the total -- that a collapse of either would cause serious stresses for the financial system and would probably seize up the mortgage market.
- Top Stocks blog: Cause versus symptom for Fannie Mae, Freddie Mac
That's why the Fed and the Treasury Department have been scrambling to handle the crisis. Regularly last week, Treasury Secretary Paulson and Fed Chairman Ben Bernanke would say they believed Fannie Mae and Freddie Mac had enough capital to function and were important to getting the nation's housing market moving again.
Stock Charts (Year)
Fannie Mae
Freddie Mac
Indeed, regulators on Friday seized $32-billion-asset IndyMac Bank, which, like Countrywide, had been one of the biggest drivers of the housing boom. It was one of the nation's largest bank failures.
A wild, volatile day
Friday delivered plenty of drama. Stocks opened sharply lower as investors sold financial stocks -- especially Fannie Mae and Freddie Mac.The sell-off was exacerbated by crude's jump to $147.22 on reports that Israeli military aircraft had been flying over Iran. Crude fell back substantially when the Pentagon strongly denied the report.
Many traders had expected the government to announce a bailout plan and pushed stocks lower when a statement from Paulson said the Bush administration supported Freddie Mac and Fannie Mae, "in their current form."
"We appreciate Congress' important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies," Paulson said in his statement.
The selling continued until 2:30 p.m. when a Reuters support suggested that the Fed had agreed to let Fannie Mae and Freddie Mac use its emergency discount window for short-term cash needs.
That cheered the market so much that the Dow went positive within 30 minutes -- and traders on the floor of the New York Stock Exchange cheered loudly.
The selling resumed when the Fed did not confirm the report. After Friday's close, a Fed official told both Reuters and Dow Jones that the central bank had not discussed such assistance with either Fannie Mae or Freddie Mac.
| Close for week | Wk. ago close | % chg. | YTD. chg. | |
|---|---|---|---|---|
Dow Jones industrials | 11,100.54 | 11,288.54 | -1.67% | -16.32% |
S&P 500 | 1,239.49 | 1,262.90 | -1.85% | -15.59% |
Nasdaq Composite | 2,239.08 | 2,245.38 | -0.28% | -15.58% |
Russell 2000 | 674.95 | 665.78 | 1.38% | -11.89% |
Crude oil per barrel | $145.08 | $145.29 | -0.14% | 51.16% |
10-yr. Treasury yield | 3.94% | 3.97% | -0.83% | -2.35% |
Gold per troy ounce | $960.60 | $933.60 | 2.89% | 14.63% |
Markets end the week lower
The Dow finished the week down 1.7% and is off 16.3% for the year. The S&P 500 was off 1.9% for the week and is down 15.6% on the year. The Nasdaq's decline for the week was a modest 0.3%; it is off 15.6% for the year.But all three indexes remain more than 20% off highs of last October -- in other words, the bear market is alive and well.
Is the market near a bottom? Not yet, but a rebound is getting closer. The major indexes have tended to rebound whenever the CBOE Volatility Index ($XIX.X), which measures the ratio of put options (options to sell securities) to call options (options to buy), tops 34. It was at 29.44 on Friday.
Friday's selling was deep and broad, with 21 of the 30 Dow stocks showing losses, along with 394 S&P 500 stocks and 80 Nasdaq-100 ($NDX.X) stocks. The Nasdaq-100 fell 29 points, or 1.6%, to 1,811.
General Electric (GE, news, msgs), which had reported second-quarter earnings in line with estimates, closed up slightly to $27.66. General Motors (GM, news, msgs) led the Dow with a 2.4% gain to $9.92.
Financial stocks were, predictably, especially hard hit, although they were recovering along with Fannie Mae and Freddie Mac. The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund, which mirrors the financial sector of the S&P 500, was down 2.5% to $18.74; it had been off 4.8% during the day.
But energy stocks weren't big winners, either. ExxonMobil (XOM, news, msgs) was down 0.8% to $85.35; the Amex Oil Index ($XOI.X) was down 1.1% to 1,412. Airline stocks were also lower, with the Amex Airlines Index ($XAL.X) down 5.6% to just under 14.
Apple (AAPL, news, msgs) fell 2.3% to $172.58 and subtracted nearly 6 points off the Nasdaq-100 Index. Its new iPhone sold briskly on its first day, but the release ran into the same kinds of problems activating the devices that marred the initial launch last year.
- Top Stocks blog: Apple's 3G iPhone suffering glitches
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Crude oil (NYMEX) (per barrel) | $145.08 | $141.65 | $3.43 | 3.63% | 51.16% |
Heating oil (per gallon) | $4.0766 | $4.0374 | $0.0392 | 4.45% | 53.87% |
Natural gas (per million BTU) | $11.9040 | $12.3000 | -$0.3960 | -10.85% | 59.08% |
Unleaded gasoline (per gallon) | $3.5632 | $3.5109 | $0.0523 | 1.76% | 43.05% |
Global worries spook oil markets
Oil surged Friday on a number of global worries. Brazilian oil workers said they will stage a five-day strike at Petroleo Brasileiro's (PBR, news, msgs) 42 Campos basin offshore platforms. The workers want the company, more commonly known as Petrobras, to give them a full day's pay for the day they spend traveling between the platform and the mainland.The Campos basin produces more than 80% of Brazil's oil.
"It's a discussion that has been dragging on for 10 years," union coordinator Jose Maria Rangel told Reuters. "It's a serious issue, the day of the disembarking, and we are prepared to strike this time."
The Brazilian supply threat adds to an already anxious market: Crude surged late Thursday to close up more than $5 at $141.65 on news that Iran had test-fired more missiles in the Persian Gulf and after a Nigerian militant group -- the Movement for the Emancipation of the Niger Delta -- said it will end a two-week cease-fire and resume attacks on Nigerian oil facilities on Saturday.
U.S. Secretary of State Condoleezza Rice responded to Iran's missile tests with tough words: "We take very strongly our obligation to help our allies defend themselves, and no one should be confused about that."
More from MSN Money
"The likelihood of an attack is the highest it's ever been," said Christopher Ruppel, an energy analyst at broker and research firm Execution, to CNNMoney.com. Ruppel said the chances of an attack by Iran on Israel are 50%. "Right away prices would go above $200 a barrel."
Oil had fallen more than $9 a barrel in the first three trading days of the week, briefly giving some relief to markets.
GE profit slips, but outlook stays steady
General Electric this morning reported earnings of $5.07 billion, or 51 cents per share, a 6% decline from the $5.38 billion, or 52 cents per share, the company reported in the same period last year.On an adjusted basis, GE earned 54 cents per share, even with last year and in line with analysts' expectations.
Stock Chart (Year)
General Electric
"Many markets and industries remain healthy, while the U.S. economy is challenged," said Chief Executive Officer Jeff Immelt in a statement. The company has to "fight through the difficulties of a burdened U.S. consumer, a tough housing market, inflation and volatile capital markets."
Still, GE's revenue rose 11% to $46.89 billion in the quarter.
"That number is quite good, actually," James Hardesty, president of Hardesty Capital Management in Baltimore, told Bloomberg Television. "A flat year in the second quarter is an exceptional performance, given the underlying conditions" in the financial markets.
GE also reiterated its full-year guidance of between $2.20 and $2.30 a share, offering some a glint of hope that the company will keep the financial turmoil at bay.
Citigroup to sell German retail banking unit
Citigroup (C, news, msgs) this morning said it will sell its German retail banking unit to France's Credit Mutuel for $7.7 billion in cash.The sale comes as CEO Vikram Pandit tries to cut underperforming pieces of the financial giant's business amid pressures from the mortgage and credit crunch.
Shares of Citi slipped 0.6% to $16.19.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Treasurys | |||||
13-week Treasury bill | 1.570% | 1.630% | -0.060 | -7.92% | -50.00% |
5-year Treasury note yield | 3.275% | 3.091% | 0.184 | -1.98% | -5.21% |
10-year Treasury note yield | 3.940% | 3.811% | 0.129 | -0.98% | -2.35% |
30-year Treasury bond yield | 4.517% | 4.421% | 0.096 | -0.31% | 1.30% |
Currencies | |||||
U.S. Dollar Index | 72.345 | 72.765 | -0.420 | -0.62% | -5.67% |
British pound in dollars | $1.9920 | $1.9782 | 0.0138 | -0.06% | 0.14% |
Dollar in British pounds | £0.5020 | £0.5055 | -0.0035 | 0.06% | -0.14% |
Euro in dollars | $1.5908 | $1.5795 | 0.0113 | 1.00% | 8.85% |
Dollar in euros | € 0.6286 | € 0.6331 | -0.0045 | -0.99% | -8.13% |
Dollar in yen | 106.08 | 107.04 | -0.96 | -0.10% | -5.16% |
Canadian dollar in U.S. dollars | $0.991 | $0.992 | -$0.0008 | 1.16% | -0.17% |
U.S. dollar in Canadian dollars | $1.009 | $1.009 | $0.0005 | -1.15% | 0.15% |
Commodities | |||||
Gold | $960.60 | $942.00 | $18.60 | 3.48% | 14.63% |
Copper | $3.7400 | $3.7185 | $0.02 | -3.67% | 22.99% |
Silver | $18.8200 | $18.3200 | $0.50 | 7.48% | 26.14% |
Corn | $6.9100 | $6.8650 | $0.04 | -4.66% | 51.70% |
Crude oil (NYMEX) (per barrel) | $145.08 | $141.65 | $3.43 | 3.63% | 51.16% |
Rate this Article
High