A wishy-washy, nothing sort of a day for equities yesterday. Although they were on the back foot, they only finished marginally underwater. The Nikkei held up reasonably well overnight despite news that once Teflon Toyota (TM) is to ask suppliers to slash prices by up to 30% next year. Steel makers fared the worst on this report. The market is now bracing itself for some ugly numbers from those former-masters-of-the-universe-but-now-humbled Goldman Sachs (GS) today before the bell.
Today’s Market Moving Stories
- Renewed speculation that the tiresome soap opera that is the on / off auto bailout will have a climax in time for Xmas. There are press reports of a $40bn package. General Motors (GM) and Ford (F) shares are marginally better bid on this.
- An aide to President-elect Obama has suggested that the U.S. needs a further stimulus package of a nice round $600bn. In these days of perfect storms and weekly black swans we have simply become comfortably numb with these kinds of numbers.
- Internal calculations from the German economics ministry reveal that GDP growth will fall by 3% or more next year. Recall that the OFFICIAL government forecast is for +0.2% growth! Yikes, the ECB best wake up and cut rates more and Ms. Merkel better start thinking US style fiscal stimulus instead of the puny package mooted to date.
- In a similar vein, the Bank of Japan governor Shirakawa said that they needed to downgrade the outlook for the economy and that FX moves have a great impact. He wouldn’t rule out using the policy tools of the past and signalled a willingness to implement policy appropriately. So, seems we are moving back to ZIRP in Nippon with a dose of quantitative easing to follow? The press are carrying reports that they are planning to buy CP (commercial paper) outright.
- Rating agency Moody’s Investor’s Services commented yesterday on the impending Irish government capital injections, saying it is generally positive but won’t lead to upgrades for the banks as it has already incorporated systemic support. The outlook for the Irish banking sector remains negative (BKIR, ANLG, AIB all currently on watch negative). But Moody’s won’t conclude the reviews for a downgrade until it can evaluate any capital support coming from this scheme which won’t be before next year. So, at least no Christmas Eve downgrades for the Irish banks.
- The trickle-down, knock-on effect of the global recession is beginning to show its very visible hand daily now in all sorts of places, with news that Suzuki (OTCPK:SZKMF) is pulling out of the world rally championship. Toyota and Isuzu (OTCPK:ISUZY) are scrapping joint R&D plans for diesel engines. Even Louis Vuitton is abandoning plans for new flagship stores. Russian bag molls will just have to make do with last year's model, with crude back down in the $40’s. European car registrations were down a shocking 25.8% in November YOY. Meanwhile, the head of the IMF is warning of social unrest.
High Interbank Rates To Continue
An interesting study in the ECB financial stability review released yesterday shows that high interbank rates are not all about lack of trust. They also reflect banks’ ongoing desire to stockpile cash against the threat of further big distressed asset depreciation, committed credit facility draw downs, and due to the need to rebuild severely damaged capital bases.
What’s more, the momentum behind the global slowdown is strengthening all the time, and this is not an environment that encourages banks to lend aggressively, whatever the political admonishments to do so. The idea floated by ECB Vice President Papademos yesterday of a Central Bank-run clearing house to guarantee interbank lending may not be certain to generate a material decline in market rates.
The big news today will come from the US FoMC (Fed) meeting at 19.15 GMT where they will decide their latest interest rates. Markets are likely to be thin and choppy leading up to the decision. Everyone is expecting a ½% cut. The focus will be on the accompanying statement where the Fed are set to unveil their quantitative easing framework.
Before that, watch out for CPI numbers from the US (13.30 GMT) and the UK (09.30 GMT) for more signs of the dreaded deflation (or Dis-inflation as J.C. Trichet prefers to call it).
At 09.00 this morning, GMT, we saw more dismal PMI (key purchasing managers sentiment survey) reports for the Euro winter wonderland. Manufacturing came in at 34.5 and services at 42, both below the 50 neutral line.
And Finally… These People Got Golden Parachutes For Causing A Recession