YAHOO [BRIEFING.COM] : The Federal Open
Market Committee's decision to slash key lending rates and make a commitment to
remedy the ailing
The FOMC was expected to slash its fed funds target rate by 50
basis points Tuesday, which would have brought the overnight borrowing rate
banks charge one another down to 0.50%. Instead, the FOMC stated it is
targeting a fed funds rate ranging from 0.00% to 0.25%, though the effective
fed funs rate was already within this range ahead of the decision.
The decision to make the cut was unanimous and marks the first time
the target rate has been below 1.00% in 50 years.
The highly stimulative rate is intended
to help the economy get on track toward growth. The FOMC stated that data that
indicate deteriorating labor conditions and declining consumer spending,
business investment, and industrial production, and the outlook for economic
activity has weakened further. However, the FOMC acknowledged it will
essentially employ all available tools to promote sustainable economic growth
and help relieve strains in the financial system.
The U.S. dollar dropped precipitously after the FOMC made its
statements. A weak economy and low interest rates hardly bode well for the
strength of the currency. In turn, the Dollar Index fell 1.9%.
Despite the struggles of the economy and the financial system,
financials (+11.3%) outperformed for virtually the entire session. The sector's
advance came even though Goldman Sachs
(GS 76.00, +9.54) posted a larger-than-expected quarterly loss, and had its
credit rating downgraded to A1 by Moody's. Investors had been long expecting a
loss, sending shares lower in each of the five preceding sessions.
Best Buy
(BBY 27.68, +4.21) helped contributed to early-morning optimism by issuing
better-than-expected earnings per share results in-line guidance for 2009.
General Electric
(GE 17.92, +0.97) caught a bid after it reaffirmed its outlook for the fourth
quarter and fiscal 2008, though it said it will no longer provide quarterly
guidance. GE also reiterated its dividend, which has been a point of concern
for many investors.
Oil prices have also been in focus with OPEC meeting tomorrow. A
cut of approximately 2 million barrels per day is expected, but crude futures
for January delivery shed $0.96, or 2.2%, to settle in at $43.55 per barrel.
Crude futures had been up as much as 4.5%, but energy traders appear to have
fully digested the prospect of a production cut.
In addition to OPEC's decision, energy traders will also contend
with the latest inventory data from the Department of Energy, which is due
tomorrow morning.
Despite the drop in oil, precious metals found favor again as
February gold and March silver advanced. Gold added $6.20 to trade at $842.70
per ounce, while silver added $0.085 to hit $10.705 per ounce.
November CPI dropped 1.7% month-over-month
and pulled the year-over-year increase in CPI down to just 1.1%. Both rates
were below expectations. The core rate was flat in November and follows a 0.1%
decrease in October. The downtrend in CPI has a negative side as it reflects
weak economic demand, but there are also clearly benefits in terms of
increasing the value of financial instruments.
Housing starts data for November declined 18.9% from the prior
month to an annualized rate of 625,000 units, which was below the consensus of
736,000 and are 47% below the year-ago level. The November decline is the
largest drop since March 1984.
Building permits, meanwhile, declined 15.6% to a seasonally
adjusted annual rate of 616,000. That was also below the consensus of 700,000.
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