Wednesday’s Market Recap: Dollar Strength Pulls Oil Prices Down Despite OPEC Announcement

Lehman Brothers (LEH) announced Wednesday that it plans to sell a majority stake of its investment management business, spin off its real estate unit, and cut its dividend as it attempts to survive our nation’s current financial crisis. Lehman Brothers will sell a 55% stake of its investment management business and in the 1^st quarter of 2009, spin off $25-30 billion of its commercial real estate investments into a separate publicly traded company which will be named Real Estate Investments Global. This will enable Lehman to stop marking down the assets in its books. Lehman will also cut its dividend to $0.05 per share from $0.68 per share, which will save the company almost $450 million.

Management also stated that a sale of the entire company is possible. Lehman Brothers have reported nearly $4 billion in losses in the 3^rd quarter and over $6.5 billion in losses so far this year. There are currently a very diverse group of possible buyers, including private US equity firms and foreign banks in Japan and Korea.

It will be very interesting to see who comes to Lehman’s rescue as Lehman Brothers attempts to regain investor confidence and raise a large sum of capital. Tuesday, shares of Lehman Brothers fell nearly 45% and have fallen over 80% this year.

A relatively good day for the markets Wednesday, motivated by good performances from the energy, consumer staples, and materials sectors, as well as investors’ reactions to Lehman Brothers’ plan. The Dow Jones Industrial Average (^DJI) rose 38.19 points or 0.34% to close the day at 11,268.92. The Nasdaq (^IXIC) fell 0.85% or 18.89 points to close at 2,228.70. The S&P500 (^GSPC) closed at 1,232.04, up 7.53 points or 0.61%.

Oil prices fell today as the Dollar continued to strengthen against foreign currency along with signs that our economy is slowing, which outweighed the US inventory news and OPEC announcement. The Energy Department’s Energy Information Administration reported that US crude oil inventories declined by almost 5.9 million barrels last week and gasoline inventories fell by almost 6.5 million barrels. Inventories of distillates (which consist of heating oil and diesel fuel) also fell last week, but by only 1.2 million barrels which was far less than anticipated.

After announcing Tuesday that production would continue at current levels, OPEC announced Wednesday that it will cut production by 520,000 barrels a day. OPEC sees this slight production cut as a compromise and would like to keep oil prices from falling below $100 per barrel. Oil prices fell $0.14 or roughly 0.14% to $103.12 a barrel. Many analysts predict oil will continue to fall and could fall below $100 a barrel, despite OPEC’s opposition.

The Dollar continued its strengthening against the Euro and is currently trading at 0.7137 vs. the Euro. The Dollar seems to have finally come off its bottom vs. the Euro and many economists expect the Dollar to continue to strengthen as the Euro-zone continues to see signs of potential economic problems. The Dollar fell to Yen today, and is currently trading at 107.55 vs. the Yen. Gold continued its decline, falling for the eighth straight trading session, losing 4.36% or $34.30 today to settle at $752.80 per ounce. The 10 year Treasury note rose to 3.6410% today, rising 125 basis points.

Disclosure: None

Posted in Categories: Contributor, Economy, Eurozone, External Research, Financial, Forex, Japan, Stocks, USA.

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