The price action Friday belies the fact that the recession just got a lot uglier. Barack Obama’s press conference seemed to assuage the market's post election jitters and give the impression that his administration will hit the ground running. In surrounding himself with some financial heavyweights (Larry Summers, Paul Volker, Eric Smidt and Warren Buffet) and hinting at a big bang fiscal stimulus, he calmed some frayed nerves.
Today’s Market Moving Stories
- Not to be outdone, the Chinese government has announced a monster $586bn stimulus package to ease their post-Olympic hangover. This should give a bit of a boost to commodities I imagine and buoyant Asian equities have pushed ahead. Taiwan cut rates again by 1/4%.
- The G20 Finance ministers meeting in San Paolo agreed on the need for co-ordinated measures to avoid recession. The trouble is there were no details of what these magic measures might be, just vague references to monetary and fiscal policy flexibility. J.C. Trichet told Brazilian TV that he did not rule out a cut in December from the ECB.
- Former Fed chairman/chief arsonist Greenspan said that the U.S. economy “was not quite in freefall, but something close to that” with monthly indicators suggesting GDP is sliding “at over 3% annual rates”. I’d call that freefall Alan.
- In the UK, the CEBR have asked the Chancellor to consider cutting VAT to 12.5% temporarily. That’s not going to help lower the pesky 5.2% inflation rate! But on the other side of the coin, a PriceWaterhouseCoopers survey suggested that 1 in 5 high street shops could close in the current slump.
Economic Expectations Finally Being Downgraded
This week’s economic highlights include U.S. retail sales and the German ZEW survey. Both are expected to be weak and are thus heavily discounted.
In essence this is what the markets need. With previous expectations being too high, all but 1 of the past 18 pieces of U.S. economic data have posted a downside “surprise” versus expectations! It is only when these expectations overshoot that we can start to call the bottom - i.e. when we get a consensus forecast for, say, a minus 400k on non farm payrolls that then comes in at, say, “only” minus 325 jobs lost.
Will The Fed Cut To 0% Interest Rate?
Fed member Dennis P. Lockhart took the bold step to state that the Federal Reserve could operate monetary policy with rates at zero and that inflation is not a concern. Indeed, he specifically mentioned the dangers of deflation amid a slump. That’s the first time we’ve heard that in this cycle. If indicative of the feeling of the FoMC, this may mean U.S. rates at zero very soon.
It’s worth noting that for once we may have the right man at the Fed at this juncture, as helicopter Ben Bernanke has spent many years studying the Japanese experience of deflation and is considered “expert” in this branch of the dismal science. The new buzz word for the coming weeks will be ZIRP (zero interest rate policy).
Equities
- Spanish raider Banco Santander has just announced a discounted rights issue of €7.2bn. As mentioned in earlier dispatches, they may have bitten off more than they could digest. Now they have some chunky and uncomfortable real estate exposure in Spain, the UK, the US and Latin America.
- The 18th and 19th U.S. bank failures this year were announced by the FDIC (Fed Deposit Insurance Corp) with Security Pacific Bank and Franklin Bank being taken over.
- The black hole that is the A.I.G(reed) rehab package now tops $150bn. As the looting continues, one may think that they are little more than a financial Enron.
- Meanwhile the seemingly inevitable bailout of the politically sensitive auto industry has moved several steps closer. Monthly cash burn numbers imply that automakers are simply going to run out of money very soon. The latest talk is of a link up between Hyundai and Chrysler.
Data Today
There’s not much data of note today. As it's Veterans Day holiday in the U.S. tomorrow, volumes should be light.
And Finally… From Matt In The Telegraph
Disclosures = None
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