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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stocks In Smackdown Mode

Stock-Markets / Stock Markets 2010 Jun 07, 2010 - 09:22 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleVery ugly close on Wall Street Friday – and with DOW below 10.000 the next important levels are now how long 1.040 and even 1.000 will hold in S&P500. Rumours that giant French bank Soc Gen (déjà vu Mr Kerviel) was in a spot of bother on derivative losses combined with a Greek style mishandling of fiscal difficulties in Hungary mixed in with some very disappointing US jobs numbers (the private sector only created 41k jobs in May with the rest best temp census hires) made for a bearish cocktail that sent stockmarkets into a tailspin.

Indeed the markets had been set up for a far better print on non farm payroll than average economists predictions by Obama’s misleadingly upbeat references to jobs in a speech Wednesday i.e. the market assumed he’d had a whiff of the number. Still think that many of global TOP50 multinational corporates, will create huge cash flows, and soon sit on large amounts of cash. Apple, Pfizer, McDonalds, Danone, Nestle, Colgate, 3M, Johnson & Johnson could be names that will soon be seen as better credits as many governments, but the difference is still that corporates do not print money and decide how high taxation should be!

Today’s Market Moving Stories

•Overnight risk assets extend Friday’s slump as the Asian ’sell the red’ mentality kicks in. It has been right to take the other side of these moves, but we need confirmation that key supports on global risk barometers will hold when the real volume starts trading later in the day. Equities continue to dance to tune played by the FX market which seem to be sending a clear message to the ECB that austerity measures will not defeat the debt problem. Speculation that Germany is close to announcing a decisive round of budget cuts in favour of stimulating growth has pushed the Euro down dangerously close to where it was struck 1.1836.
•The world’s biggest economies sought Saturday to end market uncertainty over repairing battered banking systems, by sticking with targets for new capital rules but signalling flexibility over how fast to implement them.
•George Osborne, UK chancellor, plans to proceed with a levy on UK-based banks, even though G20 finance ministers at their weekend meeting in Busan, South Korea, scrapped global plans for a banking tax. Osborne is expected to outline key points of a unilateral British bank tax in his Budget on June 22, undeterred by the move by G20 ministers to drop the proposal from their final communique amid strong opposition led by Canada.
•Congressional negotiators meeting to resolve differences over bank-regulation legislation are likely to retain a proprietary trading ban and higher capital standards while stripping a measure that would bar commercial lenders from running swaps desks, said lawmakers and analysts. Senator Blanche Lincoln’s swaps-desk provision, which has been criticized by bankers and regulators alike, probably will be sacrificed in favor of Volcker rule trading curbs in House Senate talks that may begin this week. President Barack Obama’s call for new financial-industry rules after a global economic crisis that stemmed from the collapse of the U.S. subprime mortgage market in 2008. The House approved its version in December, and negotiators from both chambers will meet this month to merge the two bills into a single measure that Obama can sign into law.
•On another ban failure weekend three banks with total deposits of almost $2.3 billion were seized by regulators amid losses stemming from soured real-estate loans, raising to 81 the number of U.S. lenders that have collapsed this year. Banks in Nebraska, Mississippi and Illinois were shut yesterday, according to statements on the Federal Deposit Insurance Corp.’s website. The failures drained $313.6 million from the FDIC’s deposit-insurance fund. Regulators are closing banks at the fastest pace since the 1990s amid loan losses tied to real estate. The FDIC’s list of “problem” lenders is the longest since 1992. FDIC Chairman Sheila Bair said the confidential list rose to 775 banks with $431 billion in assets in the first quarter.
•A report in Der Spiegel states that the German constitutional court is considering imposing an interim ban against Germany participating in the EUR 750 Bn EU/IMF support package. The magazine cited a letter from the President of the Constitutional Court, Andreas Vosskuhle, to, amongst others, the German government, the ECB and the Bundesbank.
•G20: US Treasury Secretary Timothy Geithner states that China should resume letting the CNY rise as “a necessary part” of broader reforms.
•Hungary: Eurogroup Chairman Jean-Claude Juncker said “The situation in Hungary doesn’t worry me”. Juncker’s comments followed a statement by the government in which it aimed to meet this year’s budget deficit target and described talk of a debt crisis as “exaggerated.”
•EU Commissioner for Economic and Financial Affairs Olli Rehn said that talk of a possible sovereign default by Hungary is “wildly exaggerated”, and noted that “Recent comparisons between Hungary and Greece (are) misleading”. Ratings agency Moody’s also refutes any idea that Hungary “is the next Greece”, adding that the country has a “good track record”.
•UK: Prime Minister David Cameron tells the Sunday Times that are “serious problems” with the forecast of 3% growth in 2011 inherited from the previous administration, adding “There is a huge amount of debt that has got to be dealt with. Crossing our fingers, waiting for growth and hoping it will go away is simply not an option”.

Where Now for the Embattled and Spilt ECB?

The current financial crisis has taught us to expect the unexpected, and not rule out any form of policy action that central banks are willing to take in order to stabilise markets. Indeed the unexpected nature of events has meant that the even the ECB, arguably one of the more predictable of central banks, has been forced to make significant U-turns – and I think markets will force ECB to make another U-turn.

Below a few suggestions to what ECB might do (not all at this weeks meeting):
1) Renew the 12m LTRO in JULY
2) Cut refi rate from 1% to 0.5%
3) Give itself a much more flexible approach to its “bond purchase” programme – markets will test ECB – and ECB needs to win this battle. Why are ECB not buying Spanish Bonos ? Or Italian BTPS ? Guy Quaden from Belgium might even soon ask why ECB don’t buy OLO’s (Belgium gov. bond). Contagion is for sure real – should it be allowed to escalate ? Many questions – Few answers.
When ECB wakes up and realise that inflation isn’t the immediate threat – then they will also agree on a much more large scale QE programme – and this is very much needed – Europe’s “subprime problems” are individual sovereigns – and imagine if these sovereigns can’t borrow anymore – how should banks then get access to covered bond and senior debt funding ?
The roll-off of European bank debt is very large and this is the next problem no one is talking about yet.
4) I also think they might need to halt the slide in Euro Fx rate – I know that Europe will become much more competitive with a lower FX rate – but the speed and magnitude scares many overseas investors away from Euro zone bond market – especially Asia don’t like this – and I doubt Japanese investors think a EUR/JPY rate at 1.00 is very fun, for a long term investment done at 1.40-1.60. But it seems that FX markets has become the chicken game playfield – with large competition about having the weakest currency!

Company / Equity News

•Steve Jobs will probably unveil a new iPhone today, with analysts predicting that Apple Inc.’s chief executive officer will deliver a refashioned chassis and added features designed to fend off a threat from Google Inc. Jobs is set to give the keynote address at the company’s Worldwide Developers Conference in San Francisco.
•Hewlett-Packard Co., the world’s largest printer maker, is adding a Web connection and setting up an e-mail address for all its printers as part of a long-term plan to enable printing from any device to any of its machines. Four Photosmart all-in-one printers, priced from $99, debut tomorrow, along with a new ePrint cloud-computing platform that lets customers e-mail documents and store them on the Internet, the Palo Alto, California-based company said.
•Texas Instruments , the chipmaker may rise more than 40 percent as demand for customized “smart” chips expands.
•Xstrata, which has shelved spending on A$6.6 billion of Australian projects because of a planned mining tax, said it’s “optimistic” the levy will be changed after future talks with the government.
•European aerospace giant European Aeronautic Defence & Space could revise up its 2010 sales forecast thanks to the euro’s weakness against the dollar, the company’s finance chief said in a newspaper interview to be published Monday. “Sales could be better than expected” due to the euro’s recent depreciation against the dollar, chief financial officer Hans Peter Ring told the Financial Times Deutschland.
•Over the weekend another caja merger in Spain has been announced. Caja Espana de Inversiones and Caja Duero (Caja de Ahorros de Salamanca y Soria) are considering merging and combining their EUR42bn of assets, provided they receive financial support from Fondo de Reestructuracion Ordenada Bancaria (FROB). According to Bloomberg, the plan was approved by Caja Espana’s governing assembly.
•BSkyB announced on Friday the acquisition of Virgin Media’s TV channels for GBP 160M as well as securing a more substantial presence on the cable operators’ TV platform including HD channels and on demand content. This, together with the imminent sale of Five, is one of the two remaining significant stages in the consolidation of the UK broadcast sector, but has little credit impact in its own right.

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”.© 2010 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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