My Diary 556 --- A Bust Night for Everyone

Market Diary (April 21, 2009) --- A Bust Night for Everyone

As discussed yesterday, it looks like the long awaited correction has begun and most of my concerning factors matured. US markets came down 4.3% led by 1) the biggest drop in financials ( BOA -21%, Citi -19%, BKX -15%) as concern grew that credit losses are worsening, while 2) weaker growth outlook (March LEI -0.3%) and lower commodity price (Crude -7.55%, CRY index -4%) dragged down energy and material stocks. In addition, the scary news from NYT is that US govt may have determined to potentially shore up the nation’s banking system by 3) converting the govt’s existing loans to the nation’s 19 biggest banks into common stock. Earning wise, with 92 US corporates (including Bank of NY, Coca Cola, Caterpillar, Du Pont and Northern Trust) in queue for their reporting releases this week, chances are big that the markets will be disappointing. All those uncertainties explain well that why VIX jumped 15% last night to 39.

Of course, markets never make us bored as there were lots of M&A overnight -- 6bn for Pepsico takes stakes in bottling units; 3.6bn for Glaxo SmithKline buys Stiefel, and 7.4bn for Oracle to buy Sun system. It is quiet a bust night for everyone, either you are buyers, sellers, M&A advisors, journalists, politicians and most importantly the bar tenders…And more, yesterday Doom Dr. Roubini was speaking in HK and reiterate his view that we're still deep in a bear market and this 40% rally is nothing more than a bear rally. He expects US UNE to rally to 10-11% by next year and 4Q09 GDP to be -2%. Roubini estimates China GDP this year to be at most 5.5% (worst on street.), and HK wont recover till global problem is fixed.

I think Roubini is probably for his view on HK as UNE is top 5.2% here, but not on China’s hard landing scenario. But local market should see some 500ppt correction as 1) USD stronger again, indicating weaker Asia markets usually and MSCI AxJ can not sustain 200DMAVG @ 325 WITH 1.5xpb; 2) HSBC was down 6%, which was a material part of recent stellar rise in Hangseng; 3) CM missed the street's expectation, down -4.4%; 4) CNOOC (-4.3%) is on the back foot with the plunge in Oils. Liquidity wise, the upcoming (listing May 8th) Zhong Wang 1.58M USD IPO will drain money from the market, but my bigger Q is how much money has been sitting on the sidelines and waiting for such a pull-back? This will test whether the correction can be held somewhere around 14300.

Overseas Market Reviews

After rising 6th consecutive week, global equities slumped 2.9% overnight with - 4.4% in US, -3.4% in EU, while Asia equities edged up (Japan +0.2%). USTs climbed with 2yr slid 6bp to 0.91% and 10yr moved down 11bp to 2.84%. 1MWTI oil declined considerably, falling $4.45 to $45.88/bbl—a five week low. Copper and aluminum prices decreased as well, by 4.5% and 3% respectively. USD went up 1% to EUR1.292, but weakened 1.3% to YEN97.9, an April low.