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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Another Weak Monday Opening for Stock Markets

Stock-Markets / Financial Markets 2009 May 18, 2009 - 05:46 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleEquities were on the defensive Friday as the blue chip Dow Jones declined 63 points to break a six-week long winning streak. Energy stocks led us down, the once mighty GM cut 1,100 dealerships and retailers Abercrombie and Fitch and JC Penny warned of tough times ahead. The question for today is will this be the 8th Monday out of the last ten that stocks fall? The futures are pointing down right now and Asia has been weak overnight, so the signs are not good.

Today’s Market Moving Stories

  • Japan’s Nikkei stock average fell 2.5% this morning as exporters such as Sony were hit by a stronger Yen. Panasonic lost 7% after it forecast a bigger-than-expected annual loss following a record quarter of red ink battered by weak demand, price falls and restructuring costs.
  • In early European trading Porsche shares are off 5% after VW scrapped talks with them on a merger saying that the atmosphere was not “constructive”.
  • In India, there was a resounding victory by the Congress Party (alliance garnering 260 seats in the 542 lower house). Congress now has a free hand to pursue economic/market reforms. It will encourage foreign investment inflows (FDI and portfolio) and help allay earlier fears of a sharp increase in budget deficit. Positive news for Indian equities.
  • Asking prices for homes in England and Wales rose by 2.4% in May, the biggest increase for the month since 2003, after a 1.7% rise in April, Rightmove said. However Rightmove said the rise reflected “a mixture of ambition, optimism and necessity” rather than a return to health for Britain’s beleaguered property market, because the pricing was probably not realistic and volumes low.
  • The WSJ suggests that the Office for National Statistics (ONS) has been overstating UK retail sales with the ONS conceding that since the financial crisis began, it may have overstated the volume of retail sales by some 56%.
  • FT Deutschland writes about the correlation of the euro’s exchange rate and the oil price, which warns that we might see another rally in both. Recently the euro and oil prices both stabilised at higher values. The research cites three reasons for the correlations: (1) the US economy is less dependent on oil, (2) due to the price stability orientation of European monetary policy, the ECB is expected to raise rates faster than the Fed and (3) a rising oil price strengthens the economy of the Gulf states, which tend to trend more with the euro area.
  • It seems the uber hawk Axel Webber has drawn a personal line in the sand saying that the European Central Bank’s current efforts to boost the eurozone economy go far enough unless the situation deteriorates markedly. Weber backed the ECB’s moves to cut its main interest rate to 1% and buy about €60bn worth of covered bonds. Some of the ECB’s 22 policymakers have suggested the ECB could go further, but Weber’s comments made it clear he sees no need for expansion at the moment even though he warned against taking an overly optimistic view of the recovery.
  • The Obama administration’s budget chief Peter Orszag said that there are signs that the free-fall in the economy seems to have halted. “There are some glimmers of sun shining through the trees, but we’re not out of the woods yet.” Orszag said as the economy starts to recover the budget deficit will come down quickly. The White House recently forecast a higher deficit of $1.84 trillion, or 12.9% of gross domestic product for the fiscal year.
  • One of the shrewdest and most astute investors in the Irish stock market over the past decade, Gervais Williams, gave a rare interview in the weekend press. The Irish Growth Fund, which Gervais runs, has built a 10% stake in Bank of Ireland, AIB and Irish Life and Permanent, higher then the bank’s weighting in the ISEQ. The purchases were made in the past four weeks, are influenced by the ease at which American banks raised capital and there may be “more support for Irish banks than many people have assumed”.
  • Independent News and Media announced this morning that it has reached a standstill agreement with investors in its €200 million bond. The group has also secured an additional €15 million in working capital from its banks. The standstill will last for five weeks, giving time for the group to restructure the debt on agreement.
  • One doesn’t often read that the British pound is a screaming BUY.
  • For fans of Elliot Wave theory comes a warning on the future direction of stocks.
  • An FDIC economist was charged with attempted robbery.
  • Reasons not to be cheerful. Earnings on the S&P 500 are down 90%.

The Latest On Ireland Inc
Davy’s have just released a magnum opus on the health of Ireland Inc. And according to the chaps in Dawson Street the key points are:

  • Ireland is probably past the worst of the recession. Economy may bottom in Q1-Q2 2010.
  • The pace of decline of activity has slowed. January-February was the worst point of the recession.
  • Consumer confidence bottomed last summer. “Core” retail sales are rising. Survey indicators for services, manufacturing and construction have improved.
  • Unemployment claimants are increasing more slowly.
  • Irish exports outperformed during the collapse in global trade late last year and in early 2009.
  • Labour cost adjustment boosts probability of recovery.

Davy’s are more optimistic than previously about longer-term prospects. The rapid adjustment in private sector wages highlights Ireland’s labour market flexibility and has already boosted export competitiveness. Irish stock market has bottomed in advance of economy. Real equity prices historically bottom eight quarters after the peak in real house prices and up to a year before the trough in GDP. That would pinpoint Q1 2009 as the trough for Irish equities.

Threat To Capitalism
Dr Doom Nouriel Roubini warning that Capitalism could go the way of Communism.

And Finally… Dave Chappelle On White-Collar Crime

Disclosures = None

By The Mole

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

© 2009 Copyright PaddyPowerTrader - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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