Just what a poisoned chalice the incoming Obama administration has received is becoming clearer by the day. The daily grind of grim downside surprises in economic data is stark and shows the magnitude of the mammoth task ahead.
The Dow Jones had its worst post-election day fall (-486 points) in modern history as more companies missed their forecasts. At least we know now what the issues are. It’s all about the economy and earnings.
Today’s Market Moving News Stories
- The US Treasury said that it is “actively considering additional programs” to “address the challenges to financial markets.” And I thought the only thing they hadn’t tried thus far was the reintroduction of prohibition. More seriously though the Treasury have been VERY active buyers of MBS securities in the open market over the last 2 days in big size.
- So much for the myth of decoupling. The IMF is forecasting that the economies of the US, Japan, and Europe will contract simultaneously next year. This is a massive blow to the ECB’s central forecast and is one of the reasons for their dramatic volte face of late.
- After the NY close, bond insurer Ambac (ABK) was cut to junk rating by Moody’s and bellwether tech stock Cisco (CSCO) gave some scary guidance.
- There was more awful news from the auto industry with even Toyota (TM) now seeing a dive in sales. Their Q2 net of 139.8bn yen was well short of the 276.6bn expected and sent the Nikkei cliff diving again.
- News of the German Federal government’s stimulus package sent the bond market into a brief tailspin yesterday before it regained its composure. Bonds then bid back up after a fresh fall in equities.
- Returning to one of my hobby horse topics, here a great readable story about the demand for global shipping and what it is telling us.
US Economic Data Getting Worse
The ADP jobs number was much worse than expected yesterday. The actual was -157k versus -100k expected, with the prior month being only -26k. Also the Monster employment index (which measures the volume of job ads in newspapers and other media) collapsed to a long term low and the Challenger layoffs number was poor, reaching 112,884 in October. On the back of all this, most economists are now bumping up their negative expectations for the key non farm payrolls number on Friday at 13.30. The consensus is for a fall of around -250k, up from –200k.
Let’s not forget the dire manufacturing and services ISM data we’ve had in the last two days and it shows the economic abyss the US is staring into. The ISM numbers are an extremely good guide to future economic growth (or the lack thereof as is now the case). Analysts are continuing to slice profit forecasts (and share prices) of US companies as the data worsens.
Happy Xmas from the BoE and the ECB?
Well today’s the day when central bankers on this side of the pond get to make a splash and play catch up. First up is the Bank of England's Monetary Policy Committee (MPC) interest rate decision at high noon. As the Western world's most quirky and unpredictable central bank, expectations of the size of the rate cut to be delivered range from a 1/2% to 1%. Such uncertainty is unprecedented. The Times shadow MPC voted to go the whole hog and cut 1% by a 5:4 (Bank of Japan style) margin. Note founding member of the MPC, the ever outspoken Mr Buiter, is sounding off in the Telegraph talking about a 1 1/2% cut.
The bad news is that the UK’s Council of Mortgage Lenders warned that homeowners should not expect cheaper home loans repayments on the back of the BoE cut today. As I have said before, monetary policy can be like pushing on a string with very little “trickle down” benefits. I see that the HBoS survey of house prices just released recorded another 2.2% fall on the month.
And what of the chaps in Frankfurt at 12.45? Sadly the European Central Bank (ECB) are likely to disappoint us yet again by doing only a relatively miserly 1/2%. This is fully priced in. I’d love to be wrong about this but the ECB has been hamstrung by the idiocy of their summer hike which is now constraining their actions. Central bankers are a vain lot. They hate looking foolish or admitting that they are way wide of the mark.