Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stocks Take Solace In the Fed Economic Beige Book

Stock-Markets / Financial Markets 2009 Jun 11, 2009 - 04:54 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleDéjà vu, as there was a late rally yesterday evening spurred by the Fed’s Beige book which noted that 5 of the 12 districts saw “that the downward trend is showing signs of moderating”. The market had earlier dipped on news of a very stodgy 10 year US Treasury Bond Auction (where investors demanded 3.99%, the highest yield since August 2008, to buy the government securities) and worries about inflation and higher gasoline pump prices. Note also that figures yesterday showed new mortgage applications at a four month low. Hardly surprising given a 30 year mortgage now costs 5.57% from 4.61% in March.

Today’s Market Moving Stories

  • US foreclosures are still rising. The latest RealtyTrac data has shown that one in every 398 households in the US is in some state of foreclosure. May 2009 foreclosures are up 18% yoy although a slight improvement from April. The three month run rate is now more than 300k per month. With unemployment still not falling (9.4% in May in the US) coupled with falling house prices (down 19% yoy as at end-March 09) the trend is expected to continue with total foreclosure filings for the first half of 2009 possibly reaching 1.8m. This will continue to show up in banks’ credit losses for the foreseeable future, albeit near-term. The US banks have been much more proactive in pre-provisioning, with average coverage levels north of 100% for now, while the major European bank average is around the 55-60% mark.
  • Overnight we got news of Chinese fixed investment for May. Investment continued to accelerate, with annual growth reaching almost 33%, up from a low of 24% last year. The trade balance for May showed a 4% bounce in exports, although the trend in sales remains on a downward drift (sales are down a worse-than-expected 26% from a year ago).
  • For Asian equities, key psychological barriers could keep equity markets capped for a while, with the Nikkei nearing 10,000 and the HSI closing in on 20,000. Whether the market conquers these markers ultimately depends on continued liquidity.
  • European stocks in the news are pharma giant Glaxo whose shares got a boost after they were rated “attractive” at Morgan Stanley while Electrolux is also up after a buy recommendation from Goldman Sachs.
  • More gloomy tidings from the troubled airline sector. Both Iberia and Lufthansa have released May passenger data which echoes the negative trends from other Flags. Iberia’s volume fell 11%, with domestic down 9.8% and Europe -10.3%. Lufthansa traffic in Europe declined 3.1% to 4.8m (including Swiss). It has been a tough start for summer trading across the entire industry.
  • Allied Irish Bank today confirmed that it has initiated an exchange (buyback) of its subordinate bonds, following the Bank of Ireland initiative. In principle, bond holders will have the opportunity to swap current AIB bonds for that of a specified series of new notes. Up to €2.65 billion in bonds are being bid for by AIB as part of the exchange. The pricing of the exchange will take place on June 22 2009. AIB could benefit to the tune of €700m - €800m which would provide a 10% boost to existing Core Equity Tier 1 capital of €7.7 billion.
  • Élan CEO Kelly Martin gave a little more colour last night on the timeline for the company’s long running and much commented upon strategic review. Élan is in the “last phase” of assessment, after initially receiving a lot of interest when the review process was begun in January. He reiterated the key goals of the review are to access more capital and a global commercial infrastructure, and to minimise dilution to current shareholders. Separately, he also remains very bullish on Tysabri prospects and sees potential for 100,000 patients on this drug within a 3-5 year timeframe.

Market Takes Positives From Downbeat Beige Book
The Fed’s Beige book released last night noted improved economic expectations in several districts. Indeed five districts noted that the downward trend shows moderating signs. Eight districts reported home upticks in sales (however most of these upticks in housing sales upticks were concentrated in the lower-priced end of the market). The good news more or less stopped there. Overall lending activity remained stable to weak. Credit conditions were judged to be on the whole stringent or even tightened further. Financing for new commercial properties was harder to get. And the residential real estate market was still judged to remain weak. Labour market conditions are still judged weak, with wages flat or falling. No one at the Fed believes there will be much inflation till that changes. Moreover, prices at all stages of production are flat or falling. Demand for non-financial services was judged down again, retail spending is still seen as soft and manufacturing activity declined or remained low.

So in sum, no substantial rise in economic activity is seen through year-end. Hard to see then where the market is getting it’s optimism from. Richmond’s Fed governor Lacker said there’s “no single bullet” to end the recession. Lacker is still talking as if there is and will be a recession, even if the market has decided otherwise.

FT Blowing Swedish Loan Way Out Of Proportion
There’s a misguided headline in the FT saying that ECB has lent the Swedish Central Bank €3bn, as if without this, Sweden would implode. Tosh! Sweden drew down €3bn under a pre-existing swap line (which has been disclosed - well, I knew about it and I’m no freakin’ genius) as a matter of precaution given the massive uncertainty position of the Latvian economy. It’s not like the ECB is now wading in outside its remit – the ECB was reactive here, not proactive. Meanwhile, on Swedish banks, the stress test results were released yesterday, and while they were reasonably stressful scenarios, GDP Latvia minus 20% for example, the bottom line was that the banks could take SEK150bn of losses and survive. That’s not huge but it does provide a tangible buffer and, just as importantly, some time.

There’s an excellent comment by Mary Stokes in RGE Analysts’ EconoMonitor about the possibility of contagion from the Latvian crisis. She said a Latvian crisis would hit Estonia and Lithuania through trade and financial linkages, and it would affect Sweden through the exposure of Swedish banks in the region. The question is how would it affect the other CEE countries? Direct trade and financial linkages are not very strong. The main effect would be what she calls the “wake-up channel”, a wake-up call to investors to pull out of the region as a whole.

Data Ahead Today
US retail sales for May are released at 13:30. Activity should rise by 0.6%, helped by higher car and gas sales. Excluding the latter, sales should be up 0.2%. I continue to expect real consumer spending to decline in Q2 after posting a surprising 1.5% annualised advance in Q1.

And Finally… Looking For A Lawyer, Call This Guy

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.

PaddyPowerTrader Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules