Market Update

Paulson is expected to advocate a bigger role for the Fed in overseeing the markets and securities companies. The WSJ says he will push to get this done quickly rather than as part of a comprehensive regulatory reform.

Bloomberg reports on meetings between the Fed and Treasury to plan a framework for emergency lending to securities companies after the Fed closes the Primary Dealer Credit Facility, through which securities companies access the discount window. Bloomberg says Paulson may suggest in his speech today that if the Fed is on the hook for loans to securities companies it should be able to dictate capital requirements and leverage ratios, too.

The loss yesterday posted by FedEx was the first for the company in 11 years, and was primarily the result of the loss of good will at its Kinko’s unit due to a name change. Still, the company cited higher fuel costs and the slowdown in the US economy, too. FedEx is active through all sectors of the economy, making it a particularly useful bellwether.

Fifth-Third has cut its dividend, is raising capital and is selling assets. The announcement, coming on the heels of a Goldman Sachs research piece knocking the whole banking sector, sent financials lower yesterday. Morgan Stanley earnings, described as “ugly” and “broadly disappointing” by analysts and “pretty fricken’ brutal” by the firm’s CEO, added to investors apprehension.

Retail sales in the UK jumped 3.5% in May, the most on record, without anything other than unusually warm weather to explain the strength. The rise lends support to a rate hike in the UK.

In the markets, Chinese stocks fell 6.5% to a 16-month low. Crude is up to $137 on reports of production problems.

Today, jobless claims are expected to fall back to 375k after jumping to 384k last week. The June Philly Fed index is expected to rise from -15.6 to -10.0 and May leading indicators are expected to be flat.