Opening View: China's 586-Billion-Dollar Stimulus Plan Lifts Global Markets

U.S. stock futures rally sharply following China's 586-billion-dollar stimulus plan

by Andrea Kramer (akramer@sir-inc.com) and Joseph Hargett (jhargett@sir-inc.com) 11/10/2008 8:30 AM


U.S. stock futures are broadly higher this morning, indicative of a potentially positive start to the regular session of trading. Investors around the globe are cheering China's $586-billion stimulus package, as many believe that the move will help create demand for commodities, despite fears of a global recession. According to officials, the plan is designed to loosen credit conditions, cut taxes, and support major infrastructure spending. "It should compensate for some of the weakness in the economy that is generated by the poor outlook for exports - but we do not see it compensating all the weakness," said economists at UBS. In equity news, American International Group (AIG) reported a $24.47-billion loss for the third quarter, and signed a new deal with the U.S. Treasury. Elsewhere, Coca-Cola Enterprises (CCE) was upgraded and Nortel Networks (NT) released its quarterly earnings report.

Checking in on currencies and commodities, the U.S. Dollar Index has declined 0.83% to 85.21, as the greenback is weakening versus the euro following China's bailout plan. Commodities, meanwhile, are up solidly on China's move and the weakening U.S. dollar. Specifically, gold futures have added $18.40, or 2.49%, to $752.40 an ounce in London, while crude-oil futures have added $3.33, or 5.5%, to trade at $64.37 per barrel in electronic trading.

It could be an interesting day for ailing insurance provider American International Group (AIG: View sentiment for AIGsentiment, chart, options) following the company's new deal with the Fed and its $24.47-billion third-quarter loss. Starting with the Fed, the U.S. Treasury and the Federal Reserve have restructured their support for AIG, with the Treasury investing $40 billion under the Troubled Asset Relief Program. Meanwhile, the Fed will create 2 new lending facilities to help AIG sell some of its mortgage-related assets. The Fed will also reduce its credit line to AIG and reduce the interest rate.

Elsewhere, AIG reported a third-quarter loss of $24.47 billion, or $9.05 per share, versus earnings of $3.09 billion, or $1.19 per share, last year. The company said it was negatively affected by restructuring, financial dislocation in global markets, and catastrophe losses. Excluding $15.1 billion in capital losses, AIG would have reported a $9.24-billion quarterly loss.

In other earnings news, Nortel Networks (NT: View sentiment for NTsentiment, chart, options) said it swung to a third-quarter net loss of $3.4 billion, or $6.85 per share, compared to net income of $27 million, or 5 cents per share, last year. Revenue fell 14% to $2.32 billion, as a result of a "challenging economic environment, competitive pressures and reduced spending by carrier customers." The company also warned that its results for the year would come at the bottom of its previous guidance, and said it plans to cut an additional 1,300 jobs and will extend its hiring freeze through 2009.

Finally, Coca-Cola Enterprises (CCE: View sentiment for CCEsentiment, chart, options) was upgraded to "overweight" from "neutral" at J.P. Morgan this morning. The brokerage firm stated that "while no company we cover faces as many issues as [Coca-Cola Enterprises], no company looks as cheap, either." The brokerage firm continued, "with the stock down by almost 2/3 year-to-date, we think more bad news is priced in." J.P. Morgan also lowered its 2009 earnings estimate for the company to $1.20 from $1.30, but added it sees "potential for upside" if raw material costs decline or if the packaged-beverage industry bounces back.

Earnings Preview

Also on the earnings front today, DISH Network (DISH), Focus Media Holdings (FMCN), ISIS Pharmaceuticals (ISIS), Sirius XM Radio (SIRI), Six Flags (SIX), Starbucks (SBUX), and Virgin Media (VMED) are slated to release their quarterly figures. Keep your browser at SchaeffersResearch.com throughout the day for more.

Economic Calendar

The economic calendar is devoid of data until Wednesday, when the weekly report on U.S petroleum supplies is set for release. On Thursday, only the weekly report on initial jobless claims and the September trade balance are on tap. Friday ends the week with the release of October's import/export prices and retail sales, September's business inventories, and November's preliminary University of Michigan consumer sentiment index.

Market Statistics

Equity option activity on the CBOE saw 918,608 call contracts traded on Friday, compared to 710,915 put contracts. The resultant single-session put/call ratio fell to 0.77, while the 21-day moving average remained at 0.81.

Volatility indices

NYSE and Nasdaq summary

**The volume data shown above is from the Nasdaq and NYSE exchanges only. It does not include regional volume activity, which means that other daily volume quotes you see may be higher.**

Dow, S&P and Nasdaq futures

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