Markets are still trapped and looking for direction. Equity indices continue to hover nervously on or just above key support levels, economists, politicians and other authorities aware (or becoming so) of the significance a break of these has for Technical Analysts. Most interest rates are lower, Shatz at 1.29% and Euribor futures 98.435 records, though some emerging market bond yields are up quite sharply - benchmark South African ten-year 8.685% from 7.00% in January. Currencies have on the whole been stuck in small ranges with a slight bias towards US dollar strength, Eastern Europe still under pressure and the Swedish krona versus its Norwegian counterpart weakest since 2003. Most commodities are a little lower, Nymex March09 Crude down at $33.55 though April09 delivery's low was $41.36; precious metals are up - spot silver $12.72 and spot gold $953.30.
Political and Economic Developments
Grim and grimmer. As well as the usual rate cuts, 50 basis points from South Korea and 100 from Sweden taking key rates to record lows of 2.00% and 1.00% respectively, now we get awful economic contraction. Spanish Q4 GDP -1.0% Q/Q, France's -1.2%, Germany's -2.1% (the worst since unification) and Italy's -2.6% Y/Y. French Industrial Production -11.1% Y/Y, more than double the worst decline since 1981, Italy's -14.3% and -12.0% for the Eurozone as a whole. Japanese Machine Tool Orders -84.4% Y/Y, Vehicle Sales a record -27.9%, as electronic firms and car manufacturers announce tens of thousands of job cuts. US Business Inventories down 1.3%, almost 2001's record 1.5% drop for a series going back to 1965. At a press conference to coincide with the Bank of England's Quarterly Inflation report governor Mervyn King, without an ounce of 'mea culpa' on interest rates, decided to start Quantitative Easing next month and said, 'almost everything that we are doing in the short term looks as if it is the diametric opposite of what we ought to do in the medium and longer term. And it is.' You have been warned! The wary bought another round of Index Linkers, taking the yield on 2016 to 1.12% (down from a peachy 3.50% in November). The eagle-eyed can even still find nuggets.
On the brighter side the US Trade Deficit shrank to $39.9B, a level last seen in 2003 on reduced exports and imports even more so, helped by lower oil prices and volumes. US January Retail Sales +1.0% M/M on fierce discounting.
Underlying Themes
In these very difficult economic times it is interesting to note how many resort to jargon and platitudes. Economists happily bandying around the term 'uncharted territory'. What, because their models can't cope with current scenarios they throw up their hands and call it impossible. No, life goes on and prices can continue to go down. Older men who say that events like these are 'unprecedented in their lifetime'. Have they not thought of reading history books to delve a little deeper and beyond their immediate tiny universe? Why have politicians and planners not thought to compare extreme events in non-G7 countries, pyramid and fraudulent schemes over the centuries, to see how they coped and what measures actually worked. And why have they not looked more closely into the Japanese response to an asset bubble that burst almost twenty years ago?
What to watch for next week
Sunday 15th Venezuelans vote on whether President Hugo Chavez can stand for re-election. Monday quiet, a holiday in Canada and the US, Japan Q4 GDP, January Tokyo Condominium Sales and UK February Rightmove House Prices. From Tuesday German February Wholesale Prices, Japan December Tertiary Industry Index, UK DCLG House Prices, January CPI, German and Eurozone February ZEW Surveys, US Empire Manufacturing, NAHB Housing Market Index, December net TICS Flows and EZ15 Trade Balance. Wednesday the Bank of Japan starts a two-day MPC meeting (expected unchanged at 0.10%), Minutes from the Bank of England's February 5th meeting, CBI Industrial Trends, Eurozone December Construction Output, US January Import Price Index, Housing Starts, Industrial Production, Capacity Utilisation and Minutes of the January 28th FOMC meeting. Thursday January Tokyo and Nationwide Department Store Sales, UK Money Supply and Public Finances, US PPI, Leading Indicators and February Philadelphia Fed Survey. Friday Japan December All Industry Activity Index, Supermarket and Convenience Store Sales, February Purchasing Managers Indices for various European countries, UK January Retail Sales and US CPI.
Positioning and Technical Analysis
Surely it's about time that markets get moving. This horrid indecision in the face of the obvious can be explained by the whopping sums being volunteered by governments who as yet have absolutely no idea how they will pay for any of it. Treasury paper will continue to command a massive premium over corporate and bank paper, the yield curve should flatten helped along by central bank buying and despite record issuance this year. We continue to feel that equity indices will eventually slip below last year's lows, to much wailing and flapping by those whose heads have been buried in the sand for the last year or two. Yen crosses are unlikely to benefit as they did because many already consider it too strong against a basket. The question is: which currency is the least undesirable.
Disclaimer
The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.
