My Diary 503 --- A Painful Flashback

January 15, 2009 --- A Painful Flashback

 

Overnight, it was a painful flashback to the nightmares of 2008 as renewed if not augmented economic and bank viability concerns returned to the fore. Global equities continued to stagger lower into the morass of ever- increasing negative news, belted in the gut by the release of Retail Sales which showed broad declines across all categories. However, I think the most important point is these sales were not adjusted for price declines (especially gasoline) and did not account for the extremely nasty weather experienced across the country… Not surprised, as I discussed before, no job, no demand, no earnings and no growth… Bank problems too were front. Globally Citi is dismantling, BOA needs more capitals, DB has a profit warning, and RBS is selling assets (is HSBC their next?).HSBC stock dropped 8.4% this morning after a research report from Morgan Stanley predicted it may have to raise as much as $30bn and cut its dividend in half as earnings drop. 

The Beige book was not helpful as well as it paints a gloomy economic picture – similar to the data.  News wires were also bleak: Nortel files for bankruptcy; foreclosures are on the rise in California again; and after the close, Apple announces Steve Jobs will take a medical leave until summer. In the face of this gloom, FED speakers were upbeat and tried to push the view of action – which few bought into after Bernanke refused to offer up a clear policy of quantitative easing yesterday. So bonds are up with 30Y at 2.89% off 10 bps in yield, oil down, gold down – all pushed from deflation. The EUR and the JPY remain the key focus. Many are convinced we see 113 EURJPY in short order. The ECB decision tomorrow takes on new importance. The catastrophic moves in the Eurozone economic indicators prove the deflation risks from their credit crisis. Will the ECB move fast and get the risk or continue with the pride of a too strong EUR?

What do I see today…Emerging markets are under the pump with Russia down 8%...regionally, TW and Korea already down 3-4%... the data flow is bad and probably made worse by the fact that most people in the market these days have never seen a recession…Call for Hong Kong down another 500pts and I am accessing whether it is time to add some risks for trading purpose.

Oversea Markets Review

Global equity prices dropped 2.8% with -5% in UK,-4% in EU, and -3.5% in US. These losses were cushioned by small gains in Japan and EM Asia. Globally, equity prices have now moved lower for six consecutive days—down 8.9% over that period. Elsewhere, USTs rose with the yield curve flattening a bit. 2yr dipped 3bp to 0.71%,10yr declined 9bp to 2.20%, and 30yr moved down 12bp to 2.89%. 10- and 30-year yields have fallen near 20bp this week.

1MWTI OIL slipped 50 cents to $37.28/bbl after inching up yesterday. The stable price over the past couple days follows a 5-day stretch in which oil dropped more than $11, or 20% of its value. USD rose 2.5% over the past 5 days. Against EUR, the Dollar was at $1.32—up 3.5% over the past week. Meanwhile, USD slipped a bit more against YEN to 89.1—down 4% since a week ago.