Before the bell: Rate cut hopes could fuel rebound

Posted Jan 14th 2008 7:48AM by Melly Alazraki
Filed under: Before the Bell, International Markets, Earnings Reports, Forecasts, Deals, Bad News, Market Matters, Citigroup Inc. (C), Merrill Lynch (MER), Sears Holdings (SHLD), Economic Data, Federal Reserve

Stock futures were higher this morning as investors put their hopes on the Federal Reserve as its officials, primarily chairman Ben Bernanke, have been signaling more aggressive response to the risk of recession, favoring steps to "insure" against an economic downturn. The Street is also affected this morning by the upcoming bank earnings, specifically as Citigroup may write off up to $24 billion according to published reports.

As recession odds increased, stocks saw significant losses last week. On Friday, stocks saw big declines as the Dow Jones Industrial Average lost 246 points, or 1.92%, the S&P 500 dropped 19 points, or 1.36% and the Nasdaq composite declined 48 points or 1.95%. For the week, the Dow industrials droppes 1.5%, with the S&P 500 lost 0.7% and the Nasdaq Composite dropped 2.6%.

There are no economic reports due today.
Despite a possible U.S. recession, which could lower demand for oil, the increased geopolitical tensions caused oil prices to rise above $93 a barrel this morning.
Meanwhile, as estimates that a rate cut move by the Fed is all but in the cards now, the dollar fell to a seven-week low against the euro as U.S. interest rates might fall below those of the 15 nations that share the euro for the first time in three years.
Gold futures, on the other hand, surged to a new record Monday, climbing as high as $915.90 an ounce for the same reasons the dollar dropped.

Overseas, Asian markets ended with declines. European stocks, including London, moved higher in morning trading. In the U.K., factories increased manufacturing and prices at the fastest annual pace since 1991 in December, adding to the case for the Bank of England to wait before cutting interest rates further.

News this morning is focusing on banks ahead of several of them reporting earnings this week.

Citigroup (NYSE: C) may write off up to $24 billion over subprime- and credit-related losses, putting as many as 20,000 jobs at risk, according to reports from CNBC and the Wall Street Journal. Citi also may cut its dividend payment and raise as much as $15 billion from selling stakes to foreign and domestic investors. Possibilities include Prince Alwaleed bin Talal increasing his holdings, a $2 billion investment from China Development Bank, or a $3 billion investment from Kuwait Investment Authority as the Financial Times reported.

The same Financial Times report suggested also Kuwait Investment Authority to invest $4 billion in Merrill Lynch (NYSE: MER).

Sears Holdings Corp. (NASDAQ: SHLD) warned fourth-quarter earnings per share may fall as much as 51% from last year's levels after Sears and Kmart chains saw declines in same-store sales during the holiday season. Sears also said it doesn't have the cash to complete a share-buyback program. SHLD shares are dropping over 10% in premarket trading.

Tags: c, featured, mer, shld