My Diary 457 --- October 23, 2008 : Black Swans Flying!

October 23, 2008 --- Black Swans Flying!

Yes money market continues to ease , but the VIX backs to 70…I have to ask myself to count on the numbers of black swans (Credit, FX, Accumulator, etc) I have seen so far!...Are you sure the Swan is White!... I think confidence in financial markets is not simply an issue involving balance sheets.

Equity -- US markets under significant pressure (SPX -6.1%, DOW -5.69%, NADQ -4.77%), with selling accelerating in last hour. Only a last minute stand by buyers helped to close markets to very bad levels instead of plain awful. Global equity markets tumbled 5.6% with stocks dropped 6.8% in Japan, 5.2% in EU, and 6.0% in the US.

Commodities --- Comments by BoE Governor King, continued carnage in commodities and huge losses in emerging markets all contributed to the global recession concerns. Inventories: Crude +3.18M barrels vs. +2.3M consensus. Distillates +2.16M vs. +0.1M consensus. Gasoline +2.71M vs. +2.1M consensus. Crude closes down over 7% on the global demand concerns.

Credit --- The MS trader says this morning “Well yesterday felt like one of the worst days ever for EM credit. Today was more than twice as bad, in terms of size of moves.” Colleague Steven said JPMorgan Emerging Sovereign spread is currently trading like Junk Bonds – 819bp, +13% or +97bp overnight. Asia CDS IG 500-550/ HY 1280/1480.

Gold and Dollar --- Gold and precious metals being shunned together with stocks. Gold -5.5%,Silver -6%, Platinum -5.7%. Dollar Index up over150bps.

Emerging Markets --- Brazil Bovespa halted limit down -10%, did resume trading near the close. Argentina market plunged again, losing 17%, as a planned takeover of pension funds heightened concern the government is headed for another default. CDS for EM country also widened 150-200bps, even for better rated Countries like Brazil

Hong Kong Today--- Japan and Korea open down avg 6%. China/HK large Cap ADR –avg 6-7%. Just looking how US traded overnight was scary as S&P reached the lowest level since April 03 and IF HK follows US and trade at 03 low it would mean HSI will correct to 8331 which is low on 25/4/03. But saying that I don’t think it will be that drastic as HK has corrected more than 50% already while S&P is only -46%. While it's always impossible to call the bottom till hindsight, one must be cautious.

Oversea Market Review

UST yield curve moved lower again with 2yr decreased 12bp to 1.50% and 10yr declined 14bp to 3.59%. USD/EUR broke through 1.30/ to end at 1.286.Dollar also jumped +2% against EM currencies; while it fell 2.5% vs. YEN to 97.7. 1MWTI oil price declined $4 to $66.75/bbl, its lowest level since June 2007.

There has been improvement in some portions of the money and credit markets this week. 3M USD Libor rates are down 100bp since a week ago, and 3M sterling and EUR Libor have also steadily trended lower—down 17bp and 25bp respectively over the same period.

A/H Markets Overview

China Railway (390HK) : loss Rmb1.939 bn.  No more structure deposit now,

Main Land Property: The Government announced measures to lift home market last night.

Ø         Lower down payment for 1st-time home buyers from 30% to 20%

Ø         Cut mortgage rate, which peg at 70% of Prime rate for 1st home buyers

Ø         Cut Housing Accumulation Fund mortgage by 27bps

Ø         Cut deed tax from 1.5% to 1% for 1st-time home buyers of flats sized <90sqm

Ø         Remove stamp duty and land VAT temporarily for home purchases

Ø         Regional govts may encourage home purchases by some fee-reduction policies