Ouch, the Dow closes at its lowest level since 2003. There were several reasons including:

1. Fears that a bailout of the key auto sector will fail to pass through Congress. Shares of the big three are trading at levels not seen since 1942. The difference being that they were a buy then! With the kind of crassness not seen since AIG(reeds) spa trips, we learn that the big three automaker CEOs flew private jets to plead for public funds.
2. The U.S Semiconductor Industry Association expects 2009 chips sales to fall 5.6%. This news clobbered the NASDAQ.
3. The now non-TARP for banks has let them again be saddled with all those toxic loans. Financials were down 11.5%. I feel Hank really dropped the ball on this one.
4. The housing market is showing signs of RENEWED weakness.
5. Credit markets are weaker for corporates but government bonds are rampant as risk aversion rules.

Today’s Market Moving Stories

• The FoMC (Federal Open Market Committee) minutes are usually a dull enough read coming as they do well after the event. But last nights was quite the exception showing that deflation is once again a significant concern. In the most dovish and grimmest set of minutes I can recall they signalled that the Fed stands ready to cut rates again from 1% as they have slashed their outlook for growth in 2009. Separately Fed Vice Chairman Kohn said that the economy is very weak and though the risk of deflation remains small it was important to be aggressive in getting ahead of any such risk. Zero Interest Rate Policy (ZIRP) beckons.
• In other central banker news BoE deputy governor Gieve chimed in with more glum tidings saying that “advanced economies are only at the early stages of recession” and hence policymakers must “be ready to take further action if required”. Looks like the various central banks are continuing to warm us up for a hefty dose of seasonal rates cuts in December then.
• ECB council member Nowotny in the FT is urging the Federal German government to adopt a far more ambitious (2% of GDP) economic stimulus package. In keeping with the dovish theme he further opines that tumbling inflation “obviously gives room for further measures”.
• Staying in the Fatherland, the country’s biggest state-owned bank LBBW (Landesbank Baden-Wuerttemberg) is said to be seeking as much as €6bn in capital and €30bn of guarantees from the government. Meanwhile the Italian banking association is in favour of their governments plan to use convertible bonds to help shore up dwindling capital ratios.
• It’s worth noting the dire performance of Citibank’s share price in recent days. Just 4 days ago it traded above 10 bucks; it’s now around $6.60. The market has lost confidence in the blundering CEO. The death spiral drop in it’s stock seems to be indicative that that the artist formerly known as the largest bank in the world is about to go the way of Wachovia or AIG(reed). Citi is now only the 5th largest bank in the US, oh how the mighty have fallen. They’re not dancing now.
• Note for financial historians. The dividend yield on the S&P 500 closed above 10 Year Treasury bonds for the first time since 1958. There are rumours of large S&P put positions out there and you know how the market loves to have its fun. For now the bears are firmly in control.
• Anecdotal evidence is beginning to filter through on troubles with trade finance. Now this is the very nuts and bolts of world commerce. Sure trade finance is dull and it’s where you send the recruits who couldn’t dream up sexy time bomb products to fleece customers with. But trade finance is the very lubricant that makes that ship land with those toys for Xmas you see in Hamleys. It’s not just pesky pirates on the high seas that are the problem (where is Steven Seagal when you need him). It’s more worries about escalating credit and counterparty risk, evaporating trust about ability to pay and trade finance drying up that is really showing signs of hurting some of the bigger Asian export orientated economies.
• And its amazing what you can get for $10 these days.

Data Today
In the European morning we get a look at German PPI (more good new for the ECB?) and UK retails sales at 09.30 (which though an erratic series should show a sizable drop).

The afternoon sees the usual Thursday weekly jobless claims (recall the huge jump to 506k in this number last week) and continuing claims at 13.30. Later at 15.00 the Philadelphia Fed area index and the leading economic indicators are released.

And Finally… The Kids Are (Still) Alright

Disclosures = None