Some Potentially Hopeful Signs for Equity Markets - UBS

Investors should keep an eye on credit spreads, household and business lending levels, and the Canadian dollar to determine when the stock market rout will turnaround, says George Vasic, a strategist at UBS.

Mr. Vasic says these conditions are good indicators of the health of the credit markets, which needs to improve as a precondition to an equity market rise. He says these conditions are beginning to show some positive signs.

He said:

Among the encouraging signs are improved, but still far from normal, credit spreads and, outside of commercial paper issuance, household and business credit does appear to be flowing.

Furthermore, he says the Canadian dollar at just above $0.80 was beginning to look more in line with commodity prices, which is a good sign for equity markets.

Mr. Vasic said:

A potentially hopeful sign for equity markets is that the Canadian dollar’s discount relative to commodity prices that surfaced in November, and has been highly correlated to the UBS equity risk index, has now disappeared.

He expects the Bank of Canada to lower its interest rate target a further 50 basis points to 1% in the first quarter of 2009 as economic growth slows.

UBS has cut its economic growth forecast, and expects GDP to fall 2.5% in the fourth quarter of 2008, drop 1.2% in the first quarter of 2009, and decline a further 0.6% in the second quarter.

Comments

[OldLimey:]

I guess this must mean we're in the bottom of the ninth. Again.

2008 Dec 14 10:26 AM