Stocks are set to build on Thursday's gains as global equity markets rally around news of a possible plan for the financial industry along with regulatory moves to curb short selling in shares of hundreds of financial related companies. Forty five minutes before the opening bell Friday, stock index futures point to huge rally for the US equity markets.
The Securities and Exchange Commission said Friday morning it has imposed a ban on short selling in shares of 799 financial companies. The rule, which coincided with similar regulatory changes in the UK, is effective immediately.
Meanwhile, the Federal Reserve announced two plans to help liquidity in the financial markets Friday morning. It is extending loans to finance the purchase of commercial paper from money market funds. The Fed will also buy short term debt issued by Fannie Mae and Freddie Mac from primary dealers.
Thursday, stocks recovered from early losses after Treasury Secretary Paulson discussed a possible plan to help cleanup the financial industry. Similar to the Resolution Trust Corp. (RTC) used in the 1980s during the failure of many savings and loans institutions, the program would help banks move bad assets off their balance sheets.
Earlier Thursday, the Fed and the ECB, along with Central Banks in Japan, Switzerland, Canada, and Britain, said they were pumping billions into the world's money markets.
Stocks moved sharply higher across Asia and Europe as investors applauded government efforts to help the financial markets and the banking industry. Japan's Nikkei rallied 432 points, or 3.8 percent, to 11,920. Hong Kong's Hang Seng surged 9.6 percent to 19,327. The DJ Europe Stoxx Index is up a stunning 7 percent, led by an 8.2 percent in UK's FTSE 100 Index.
In the US, shares of some of the most battered financial names are seeing huge gains. Morgan Stanley (MS) is up 47.1 percent, Wachovia (WB) 34.5 percent higher, and Goldman Sachs (GS) gaining 33 percent.
American International Group (AIG) rallied nearly 50 percent after its new CEO Edward Liddy said he hopes to keep the company intact and as a publicly traded company.
Oracle (ORCL) is up 11.7 percent after posting better than expected quarterly earnings.
With no economic news out today, bonds are feeling the weight of stronger global equities. The benchmark ten-year Treasury bond is hammered for a 2-point loss, pushing its yield up from 3.5 to 3.8 percent.
The dollar is stronger, up 2.37 to 107.75 on the yen. The euro slipped .008 to 1.4267.
Crude oil rallied $2.27 to 100.15 a barrel. However, gold fell victim to the stronger dollar. The yellow metal was down $28 to $889 an ounce.
Meanwhile, the options market has seen two days of record volumes amid wild action in the US equity market. As stocks recovered from early losses and the Dow rallied 410 points yesterday, the CBOE Volatility Index (.VIX), which hit its best levels in almost six years in midday action, fell 3.12 to 33.10
With help from some expiration-related activity, total volume rose to its best levels ever, with approximately 15.1 million puts and 14.4 million calls traded across the US exchanges.
The financials continue to see heavy trading. 617,000 puts and 760,000 calls traded on the Select Sector Financials (XLF). Morgan Stanley (MS), Goldman Sachs (GS), Citi (C), and Wachovia (WB) were among the most actives.
Volume picked up in Apple Computer (AAPL), General Electric (GE), and Research in Motion (RIMM).
Some of the energy names, including Diamond Offshore (DO), Holly Corp. (HOC), and XTO Energy (XTO), saw bullish spread trading. Calls on SanDisk (SNDK) were active for a second day. Wednesday, the company said it rejected a takeover offer from Samsung. Bullish trading was also seen in the SPDR Gold Trust (GLD), Kraft Foods (KFT), and Wells Fargo (WFC). Meanwhile, defensive or bearish order flow was seen in Xerox (XRX), State Street (STT), and CIT Group (CIT).
Frederic Ruffy
WhatsTrading.com
