Apols for the late post today. Anyway, Wachovia posts results that are about twice as bad as expected and the market rewards them to the tune of a 27% rise in the share price on the day. What is going on you ask?

Well it seems that either investors are VERY forgiving of the huge losses (maybe choosing to focus on the promises of cost reductions and improved earnings) or else too many people had already sold the stock short and were squeezed out in a very painful manner. Sometimes the price action tells you a lot about how people are positioned. When the market senses weakness, in this case if everyone was short, a small amount of buying causes over-eager bears to cover their losses. The result: a big upwards move. Of course once a few people start to believe this is what’s happening the move becomes self filling. Also I think the new rules banning naked short selling are a contributing factor to some of these wild, counter intuitive moves.

More generally, a whiff of risk appetite is returning. But those of you who are devotees of horror movies will know it’s the moment that everyone relaxes in relief that the next terrifying shock comes along.

U.S. thrift (read building society) Washington Mutual came in with earnings that were the guts of 5 times worse than expected after the close. U.S. rating agency Moody’s wasted no time in downgrading them and they are now close to junk bond status - which of course means that their ability to raise any new form of capital or equity is severely impaired.

Snippets: Talking The Talk, But Dare They Walk The Walk ?
Firm rhetoric from U.S. Treasury Secretary Paulsen and Fed governor Plosser (he voted for a rate hike at the last FoMC meeting) yesterday helped push EURUSD lower. A continuous slew of soft economic data from the Eurozone area since the last ECB rate hike is of course is making this trade easier.

According to the WSJ, U.S. House & Senate leaders have largely hammered out a compromise deal on a mammoth housing package that would permit the Federal government to bolster Fannie Mae & Freddie Mac in an emergency. So the bailout that dare not speak its name is becoming a reality. One wonders what kind of blank cheque the taxpayer is being asked to sign?

Also from a busy Capital Hill yesterday comes the news that a Bill to “rein in oil speculators” (whoever they are?) cleared a U.S. Senate procedural hurdle and now moves to the debate stage. This news, combined with the recent lifting of the ban on offshore drilling, has certainly impacted the price of crude oil over the last few sessions & resulted in some hedges funds cashing in their chips for now (see below).

There are also press reports that the ECB is lowering its growth forecast for the Eurozone. If true this is VERY significant news, particularly with commodity prices seemingly on the decline, and could mean that we are “one hike and done”. Not great news for Euro bulls though.

Oil: Slip Sliding Away
Crude prices remain very soggy in the Asian trading pits following last night’s sharply lower New York close. The New Your session saw prices dive to as low as $125.63/brl, its weakest level since early June. There was little bottom fishing evident thus far, despite Dolly being officially upgraded to a Hurricane. Prices are now near $20 lower than their record peak of $147.27/brl on July 11 and, whilst a fare amount of unwinding has occurred over the past week, hedge funds are still looking to scale down their long positions. Charts are also bearish, with scope for further losses eyed.

Data on the Radar
From the U.S. we get what is called the Beige Book tonight. This is an anecdotal survey of the 12 Fed districts. Oh, and we’ve just learnt that the BoE is now split 3 ways on rates - beat that!

Equities: Defying Gravity
Earnings today from AT&T, Boeing, Pfizer, Philip Morris, Amazon & Anheuser-Busch!

Stocks making the headlines today include VW (Europe’s largest carmaker) who said 2nd quarter profits rose 35%. VW say new models including the Tiguan compact attracted buyers. Shares were up 7%.

Peugeot Citroen also post results that beat expectations and shares are up 10%.

Vodafone have announced a share buyback after yesterday’s ugly price action in the stock.

As usual with oil trading lower, airlines stocks (BA & Air France in particular) are benefiting this morning. Big bank stocks (HSBC, UBS & Credit Suisse) are also trading higher in sympathy with the (perverse) move in U.S. financials.