US Market Update 12/5

Investors have begun the week selling equities, with US stock indices opening in the red and the DJIA and S&P500 staying there through mid morning. The Nasdaq has popped into positive territory as buyers step in looking for deals after three days of relative underperformance.

Front-month NYMEX crude has regained the $1 it lost overnight to trade around $58. US Treasury prices are rallying with the first of 3 coupon purchases by the NY Fed scheduled for this week adding to the upside momentum. - Capital One, US Bancorp and BBT Corp launched significant share offerings (COF 13% of market cap, USB 7% market cap, BBT 10% of market cap) this morning in order to pay back their TARP borrowing. All three banks had been declared "adequately capitalized" under the government's stress testing program.

Morgan Stanley arranged another $600M in support via a common equity investment by Mitsubishi UFJ, after pricing around $3.5B worth of stock on Friday. MUFG is reportedly swapping some of the preferred stock it acquired earlier for common shares. This orgy of dilution comes after Richmond Fed President Lacker said over the weekend that the Federal government should limit its aid to financial companies, as the aid could prompt excessive risk taking.

Warren Buffett's Berkshire Hathaway reported a $1.5B loss after the close on Friday, thanks to a write down of its ConocoPhillips investment and unrealized derivative losses. This was the company's first loss since 2001. Buffett had already acknowledged the mistake of buying COP stock when oil and gas prices were near their peak. - Over the weekend the NY Times published a very cautious survey of the US credit card market. According to the recent stress test results, the 19 largest US banks could see more than $82B in credit card losses by the end of 2010 under what was classified as a "worst case" scenario.

If unemployment moves above 10%, losses at some banks could far exceed that level. AXP and DFS were down 5%, while MA and V were down 2% on the news. - In earnings, satellite TV names Dish Network and close partner Echostar offered diverging quarterly results. DISH is up 15% this morning after outperforming analysts' estimates, although it also said it lost 94K subscribers (with total subscribers of 13.6M at the end of the quarter). SATS reported a small loss, sending its shares down 4% in early trading. Shares of Virgin mobile are on fire, rising more than 25% before the bell and sustaining those gains in the early going, after the firm blew out earnings estimates. In other news, Agrium raised its offer for CF Industries by 14% to $40/shr, plus stock; CF said it is considering the offer.

- In currencies, the firmer USD and JPY pairs have maintained strength against their European counterparts in New York trading. After testing above the 1.3650 level, EUR/USD hovered below 1.3590 for the bulk of the New York morning. Dealers noted that the revised US deficit projections from the White House Budget Office curbed some of the dollar's upside momentum. Several factors were cited for the stronger JPY, including press articles from the weekend insisting that the crisis in financial markets was not over. In addition, there was continued chatter that Japan's FSA might amend the FX margin requirement to curb currency speculation.

EUR/JPY tested 132.05 before consolidating its gains, while GBP/JPY lost around 350 pips at one point to test 146.75 area. EUR/GBP moved back above the 0.90 level in a trend that ensued following last Thursday's BoE and ECB monetary policy decisions on quantitative easing.