Another nasty week as equity indices drop, some through the key support levels we have been flagging, the Swiss index leading on worries over bank secrecy and tax evasion. The biggest losers have been the Eastern European ones, plus Austria, as concerns over financial stability and economic prospects there intensify. Austrian ten-year Treasury yields leapt to a record 135 basis points over Bunds as the county's banks have the biggest absolute amount and proportion of GDP in loans outstanding to the region. Currencies were obviously affected, the Polish zloty hitting a record weak point of 4.9300 to the Euro though South Korea managed an ever bigger loss taking it to 1515 to the US dollar, its weakest since the 1997/1998 Asia crisis. The Swedish krona weakened considerably to 1.2700 against its Norwegian counterpart as SAAB filed for creditor protection. In fact the US dollar has gained against every single currency this week and even so spot Gold rallied to $1000.30 and Silver to $14.55 per ounce. Interestingly the Bank of England's Mutilated Notes Department reports a 60% increase in claims for muddy and dusty bills. Some interest rates are lower, Shatz a record 1.15%, though Czech government bond yields and sovereign Irish Credit Default Swaps are sharply higher.
Political and Economic Developments
Almost five million Americans (a record 4.987M to be precise) are claiming unemployment benefit, as are 6.1 million Russians. Daily announcements of huge job cuts are beginning to lose their ability to shock and Toyota UK is one on many firms freezing wages while others are postponing agreed pay settlements. Avon, the world's largest direct seller of cosmetics, is freezing all wages and will cut the travel and entertainment budget by 35%. Others have introduced temporary plant closures and Nasdaq listed Hardinge will cut wages of those not affected by the imposition of a four-day-week. Some will be happy to hear that UK 'Magic Circle' legal firm Allen and Overy are freezing billing rates indefinitely. Companies are also suspending share buy-back programs, scrapping dividends and trimming pension contributions.
UK RPI increased just 0.10% in the year to February, the lowest since 1959's drop of 0.80%, though CPI is still a hefty +3.0%. Likewise in the US CPI 0% (with Core CPI +1.7% Y/Y), the lowest since 1955's –0.70%.
Taiwan cut rates by 25 basis points to 1.25% as Q4 GDP drops a record 8.36%.
Underlying Themes
All too many governments have got out their cheque books furiously signing away IOU money to all and sundry. We have already lost count of how much has been given away, to who, and with little idea who will oversee the spending. One can already almost see it all fleeing swiftly to offshore centres. Worse still, what this largesse has managed to do is change they way 'penny shares' are perceived. Now, instead of being cheap and a possible 'bargain' they are merely candidates for nationalisation.
What to watch for next week Carnival starts in several countries this weekend and continues with public holidays until Ash Wednesday. Monday Japanese January Supermarket Sales, German Wholesale Prices and UK Nationwide House Prices from this day. Tuesday Bank of Japan January 22nd MPC Minutes, Corporate Service Prices, UK BBA Loans and CBI Quarterly Distributive Trades, German February IFO, Eurozone December Current Account and Industrial New Orders. Then US December CaseShiller Home Price Index, February Consumer Confidence and Bernanke's Report on the economy. Wednesday Japan January Trade Balance, German Q4 final GDP, UK Q4 GDP and US January Existing Home Sales. Thursday German February Unemployment and CPI for the various states, GfK March Consumer Confidence, EZ16 January M3 Money Supply and February Business Climate Indicator, US January Durable Goods Orders and New Home Sales. Friday Japan January Jobless, Household Spending, Industrial Production, Large Retailers Sales, Retail Trade, Housing Starts, Construction Orders, Nationwide CPI and Tokyo February CPI. Then UK February GfK Consumer Confidence, EZ16 January CPI, Unemployment, US final Q4 GDP, February Chicago Purchasing Managers and University of Michigan Confidence. Saturday is the 1st March and Japanese firms start preparing for financial year-end.
Positioning and Technical Analysis
Equity indices will push each other lower gathering speed on the way down and top notch Treasury paper will continue to command a massive premium; yield curves should flatten helped along by central banks as their increasingly desperate attempts to stop the rot are probably doomed to fail. Be very careful in the FX market as this is very jittery indeed with several currencies trading at what might turn out to be unsustainable extremes. The general public, whose awareness of financial, economic and social problems is growing, will turn their focus and derision on to the inept political elite. Investors must consider very seriously exactly where and who to entrust their money as in desperate times the temptation to swindle increases.
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.
