Sunday, April 19, 2009

Weekly Market Commentary


Another holiday-shortened week and another mini-PR campaign from the US authorities. Fed chairman Bernanke said he saw 'tentative signs that the sharp decline in economic activity may be slowing', while President Obama's 45 minute speech included comments like: 'by no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope' because his recovery package was 'starting to generate signs of economic progress'. Treasury yields remain unchanged from where they have traded for several months, some emerging market yields are a tiny bit lower and credit spreads narrowed a tad further. Most equity indices are fractionally higher for the sixth consecutive week while Baltic Freight Rate ones are lower than they have been in years. CBT Soybean futures at $1.067 per bushel are more expensive than they have been since early October, likewise LME 3-month Copper, Lead and Zinc, though precious metals drifted lower, spot Gold to $867.50 per ounce. Foreign exchange very dreary, holding pretty much where we left off last week.

Political and Economic Developments

Discussions as to whether inflation or deflation lurk around the corner resurfaced, the latter being supported by a string of numbers this week. Japanese Domestic Corporate Goods Prices dropped -2.2% Y/Y, by far the lowest since 2001 and 'bento boxes' from major supermarkets are available at under 300 Yen for the first time ever. German Wholesale Prices dropped -8.00% Y/Y, the biggest drop since 1987; Spanish CPI shrank by -0.1% Y/Y, the first decline since the series began in 1962. Swiss Producer Prices dropped -0.5% M/M and -2.8% Y/Y, the steepest in a decade while CPI dropped -0.4% Y/Y, the most negative number since 1959. February Swiss Retail Sales dropped -3.8% Y/Y and US Retail Sales fell -1.1% in March. Nevertheless Treasury Index-linked securities remain well bid, short-dated ones yielding between 0.80% and 1.25%, ten year roughly 1.50% to 1.80%, depending on the issuer. Investors in these are probably taking their cue from the daily Treasury auctions supporting politicians' largesse with their various stimulus measures.

Singapore's Q1 GDP shrank -19.7% Q/Q, -11.5% Y/Y, number's truly shocking for one of the world's most open and export-led economies. Ratings agency Fitch cut Thailand's sovereign rating to BBB because of civil unrest, leading to corresponding cuts in four of its banks.

Underlying Themes

A surprisingly candid Janet Yellen at the Fed said, 'now that we face the tangible and tragic consequences of the bursting of the house price bubble, I think it is time to take another look' as to whether they should take pre-emptive action before these 'time bombs' build. US experts estimate that those whose homes have been repossessed scrounge from family and friends for 6-8 months before resorting first to living in their car, then to shelters, and eventually tent cities. In New York 2/3 of those in shelters are families and there are a total of 1.5 million homeless children nationwide. A survey of 1,300 US public libraries found that 90% of staff had had to call the police because the untreated mentally ill were causing a disturbance using the buildings as day-centres.

The UK's Mental Health Foundation found that ¾ of us thought the world a more frightening place than it was ten years ago, 2/3 worried about the economic situation, ½ were anxious about their money - leading to an extra 800,000 suffering from anxiety disorders than those in the last recession of 1993.

What to watch for next week

Saturday several Fed chairmen plus Paul Volker speak at a conference on the economy in Nashville. Monday the Swedish Riksbank starts a two-day meeting to decide on interest rates (expect a 25 or 50 basis point cut from the current 1.00%), Japan March Convenience Store Sales, US Leading Indicators and UK April Rightmove House Prices. Tuesday the Bank of Canada decides on rates (currently 0.50%), UK March CPI, German PPI and April ZEW Survey. Wednesday the Bank of England publishes Minutes of 8/9th April MPC meeting and chancellor Darling presents his Budget. Japan March Trade Balance, UK Unemployment, Public Sector Finances, Money Supply and February Average Earnings plus US OFHEO House Price Index. Thursday April PMIs for various European countries, Eurozone February Current Account, Industrial New Orders and US March Existing Home Sales. Friday Japan February All Industry Activity Index, March Corporate Service Prices, UK Retail Sales, US New Home Sales and Durable Goods Orders, German April IFO and UK revised Q1 GDP. Saturday the IMF and World Bank meet in Washington.

Positioning and Technical Analysis

Markets are very inconclusive and are probably best avoided for the time being. Until clear, sustainable trends emerge following the Easter break there is little point rushing from pillar to post, proclaiming either that 'the end is nigh' or that one has 'seen the light'.

Mizuho Corporate Bank


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.