Even the tabloid press are reporting on equity indices as they drop below key chart levels, a fourth consecutive weekly decline for the S&P 500 and Dow Industrials to match 1997 levels, and Japan's Nikkei and Topix to 1983 ones. Others are back close to 2003's lows, financials and automakers leading the way down as US February Vehicle Sales drop to 9.1M from an average of 16.0M between 1999 and 2007. The problems are the same as they have been for months, just more entrenched and the general public more aware. The rush into two-year Treasuries continues and ten-year Gilt yields tumbled from 3.67% to 3.04% within hours of the Bank of England saying Quantitative Easing would involve buying medium and long-dated issues; why anyone was surprised seeing as the UK yield curve is almost at its steepest ever begs the question. Credit spreads are widening a little, from short-dated TED spreads, iTraxx Crossover a new record 1160, out to French ten-year OAT a record 65 basis points over Bund. FX mixed with the US dollar gaining against most, India's rupee a record 52.13 per greenback and likewise the Turkish lira at 1.7940. Swedish krona a new record 11.8000 per Euro, Hungary too at 317.50, and the South African rand down 4.25% to 10.6900 in just five days. LME 3-month Copper inched up to $3790 per tonne, highest since November, as China reiterated its target of 8.0% GDP growth this year.
Political and Economic Developments
More interest rate cuts: 50 basis points from Canada, the ECB, Bank of England, India, Indonesia and the Philippines to 0.50%, 1.50%, 0.50%, 5.00%, 7.75% and 4.75% respectively. Mr. Trichet slashed growth and inflation forecasts for this year and next, eventually giving up on the excessively rosy predictions they had been clinging to for far too long. At least we won't have to listen to them pushing back recovery dates every three months or so as the Fed and others are currently doing.
Only in America: 'Hank' Greenberg, the man who 'se*ed-up' AIG by insuring dodgy financial products it didn't understand, then used dubious accounting methods which eventually led to a record Q4 loss of $61.7B, is suing the US taxpayer! Claiming securities fraud, and demanding back taxes, he says the now state-owned company artificially inflated the share price he paid for it – this after he bought into Lehman Brothers in July last year.
Underlying Themes
Bad news continues to seep from the property sector. UK HBOS February House Prices dropped 17.7% in twelve months, well below their £199K peak of August 2007, and at £160K are back to where they were in August 2004. This represents 4.42 times average earnings, the lowest in six years and just over the long run median of 4.00, well below July 2007's peak at 5.84. US Q4 Mortgage Delinquencies soared to 7.88% of the total, way above the 1985 6.00% peak and the 4.70% average since 1972. The Mortgage Bankers Association says one in eight homeowners is either behind in their repayments or in foreclosure, and 11.18% have skipped at least one payment, the very same people the government's $275B housing stimulus package is aimed at. However, the programme only addresses the issue of potential affordability. As house prices continue to drop because of oversupply and lack of demand, and unemployment rises, squaring the circle will become even harder. US February Unemployment soared to 8.1%, the highest since 1983, as Non-Farm Payrolls decline around the 600k mark for a fourth month in a row. Note that delinquencies spread from the core California/Florida/Nevada/Arizona/Michigan areas to Louisiana, New York, Georgia, Texas and Mississippi.
What to watch for next week
Sunday the 8th March is Prophet Mohammad's Birthday (subject to lunar sighting) with holidays in many countries Monday and a few during the week. From Monday German January Producer Prices, Japan Trade Balance, February Money Supply and Bank Lending, Bankruptcies, Economy Watchers' Survey plus Eurozone March Sentix Investor Confidence as EU finance ministers meet. Tuesday Japan January Leading and Coincident Indices, February Machine Tool Orders, UK RICS House Price Balance and BRC Retail Sales, German January Trade Balance, UK Industrial Production, Eurozone PPI and US Wholesale Inventories. Wednesday Japan January Machine Orders, February Domestic CGPI, January Trade Balance, German Factory Orders and US Monthly Budget Statement. Thursday Japan Q4 final GDP, EZ16 January Industrial Production, US Business Inventories and February Retail Sales while the Swiss National Bank decides on rates. Friday (the 13th and unlucky for some) Japan February Consumer Confidence, EU25 New Car Registrations, Eurozone January Retail Sales, US Trade Balance and March University of Michigan Confidence Survey. Saturday 14th G20 finance ministers meet in London, OPEC meets in Vienna Sunday and El Salvador holds presidential elections.
Positioning and Technical Analysis
Stock indices should continue under pressure, with all too many hoping for a bounce any day now, as the threat of another bank(s) nationalisation this weekend and every other one steers the mindset. The spread between 'bank' and Treasury paper should widen, yield curves flatten (especially at the very long end), while risk avoidance continues.
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.
