Sharp rise projected on GSE bailout, BUD deal
Small-cap stocks were expected to jump higher on the opening, lifted by a government rescue plan for embattled mortgage lending giants Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) and by a large acquisition of iconic American brewer Anheuser-Busch Co. (NYSE:BUD). The Russell 2000 (NYSE:IWM) was up over 1% in overnight trading, which suggests an opening near 682.
The Treasury Department this weekend announced plans to temporarily increase credit to the government-sponsored credit firms (GSEs) in addition to other measures to ensure the health of FNM and FRE. As a result, stock in the two firms rallied aggressively overnight, and the move appeared to calm stock markets, which also were climbing ahead of the regular stock market open.
Still, the failure late last week of IndyMac (NYSE:IMB) and the freefall in GSE stocks underscores the precarious position right now for the banking system. IMB’s failure ranks as the 3rd largest in history.
In addition to the GSE rescue plan, investors were heartened this morning by the announcement of an acquisition of Budweiser by Belgian firm InBev NV for $52 billion, which will create the world’s largest beer-maker and bring a conclusion to a tumultuous month-long takeover battle between the two firms.
The sharp rise in equities overnight sparked a rally in the U.S. dollar, which gained about 0.5% against the euro and 0.4% versus the yen. The dollar crumbled last week against the euro amid the GSE crisis and a dramatic surge in energy prices. However, crude oil prices edged lower in European trading, slipping down to about $144 dollars a barrel, and grains prices were called sharply lower this morning, so the physical inflation news was a positive element in play for stocks starting out the week.
From a chart standpoint, the market should open within striking distance of 684, which acted as a barrier on the recovery move last week. If the Russell can pop through 684, then the next key upside test comes in at 690. On the flip side, if the market starts to falter today, then support off the higher opening would be at 674, then at 669.
