Global Markets in Review: Economy, Markets

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Economy

According to the latest Survey of Business Confidence of the World conducted by Moody’s Economy.com:

Global businesses remain very pessimistic. Sentiment is dark across the globe. Those that work in government are most worried, followed by businesses in financial and business services. Pricing power has sharply eroded, suggesting that deflation is increasingly likely. The only silver lining is that business confidence has not declined further since hitting bottom in mid-December.

The latest U.S. economic reports were less grim in some instances than in previous reports, with a few indicators showing that the pace of decline could be slowing down. This view is shared by Nouriel Roubini (RGE Monitor) who wrote in Forbes:

In the US … the second derivative of growth and of other economic indicators is approaching positive territory (i.e. growth is still negative, but GDP may be falling at a slowing rate).

A snapshot of the week’s U.S. economic data is provided below. (Click on the dates to see Northern Trust’s assessment of the various reports.)

Friday, February 6

• Employment Report: Severity of weakness will stimulate votes for fiscal stimulus under consideration

Thursday, February 5

• Initial Claims: Labor market situation is dismal
• Productivity: Advanced in fourth quarter
• Factory Orders: Inventories/shipments ratio keeps advancing

Tuesday, February 4

• ISM Non-Manufacturing Survey: Pace of deceleration is slowing

Monday, February 2

• Senior Loan Officer Survey: Includes positive aspects
• Consumer Spending: Significant reduction
• ISM Manufacturing Survey: Positive news, but more is necessary
• Construction Spending: Remains week

BCA Research added:

In nominal terms, consumer spending declined at an annualized pace of 11% in the three months to December - the largest contraction since the 1930s. For most consumers and companies it is the trend in nominal dollars that matters, not the statistical artifact of ‘real’ dollars, measured in the national accounts. The need for dramatic stimulus is obvious: declining nominal activity points to a deepening financial crisis.

Elsewhere in the world, the Bank of England (BoE) slashed its key repo rate by 50 basis points to 1.0% (the lowest level since the BoE was formed in 1694), whereas the Reserve Bank of Australia (RBA) cut its cash rate by 100 basis points to 3.25% (the lowest level in two decades). As expected, the European Central Bank (ECB) maintained its key policy rate at 2%, but will in all likelihood reduce the rate further in coming months as economic indicators show the Eurozone still contracting and inflationary pressures easing.

Further afield, the International Monetary Fund halved its 2009 growth forecast for Asia from 4.9% to 2.7%.

In an article in the Financial Times, Glenn Maguire, Asia chief economist at Société Générale, said:

Clearly the hopes that Asia would experience a mild downturn while the global economy retrenched have now been firmly dismissed.

Japan, according to Roubini, is entering another severe slump, one that looks worse than that of other advanced economies, and the fall is still accelerating, resembling a severe case of stag-deflation.

More dire news came from the Russian economics ministry, forecasting the economy’s slide into recession in 2009. GDP growth is forecast to be -0.2% this year compared with 5.6% in 2008. Meanwhile, the ruble has slumped by 35% against the U.S. dollar since August to its weakest level in 11 years. Concerns about the downgrading of the country’s credit rating and a $200 billion reduction of its currency stockpile weighed on sentiment.

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On a more positive note, strong Chinese bank lending and manufacturing data provided signs that the government’s attempts to spend its way out of the economic slowdown are starting to show results. China may also consider tapping into its $1.95 trillion foreign reserves to help boost demand. With domestic government debt only 16.2% of GDP, the country is in a better position to do so than most major economies, according to U.S. Global Investors.

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Week’s economic reports

Click here for the week’s economy in pictures, courtesy of Jake of EconomPic Data.

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior
Feb 2	8:30 AM	Personal Income	Dec	-0.2%	-0.4%	-0.4%	-0.4%
Feb 2	8:30 AM	Personal Spending	Dec	-1.0%	-0.8%	-0.9%	-0.8%
Feb 2	10:00 AM	Construction Spending	Dec	-1.4%	-1.0%	-1.2%	-1.2%
Feb 2	10:00 AM	ISM Index	Jan	35.6	32.0	32.5	32.9
Feb 3	10:00 AM	Pending Home Sales	Dec	6.3%	-0.5%	0.0%	-3.7%
Feb 3	2:00 PM	Auto Sales	Jan	-	NA	NA	3.6 m
Feb 3	2:00 PM	Truck Sales	Jan	-	NA	NA	4.2 m
Feb 4	8:15 AM	ADP Employment Change	Jan	-522K	-525K	-535K	-659K
Feb 4	10:00 AM	ISM Services	Jan	42.9	39.5	39.0	40.1
Feb 4	10:30 AM	Crude Inventories	01/30	7.17 m	NA	NA	6.2 m
Feb 5	8:30 AM	Initial Claims	01/31	626K	585K	580K	591K
Feb 5	8:30 AM	Productivity-Prel	Q4	3.2%	1.0%	1.5%	1.5%
Feb 5	8:30 AM	Unit Labor Costs	Q4	1.8%	3.0%	2.8%	2.6%
Feb 5	10:00 AM	Factory Orders	Dec	-3.9%	-3.5%	-3.1%	-6.5%
Feb 6	8:30 AM	Average Workweek	Jan	33.3	33.3	33.3	33.3
Feb 6	8:30 AM	Hourly Earnings	Jan	0.3%	0.3%	0.2%	0.4%
Feb 6	8:30 AM	Nonfarm Payrolls	Jan	-598	-525K	-540K	-577K
Feb 6	8:30 AM	Unemployment Rate	Jan	7.6%	7.5%	7.5%	7.2%
Feb 6	3:00 PM	Consumer Credit	Dec	-$6.6B	-$3.0	-$3.5B	-$11.0B

Source: Yahoo Finance, February 6, 2009.

In addition to Fed Chairman Bernanke’s testimony on the Central Bank’s lending programs in Washington (Tuesday, February 10), the U.S. economic highlights for the week include the following: Wholesale Inventories on Tuesday, the Trade Balance and Treasury Budget on Wednesday, Initial Jobless Claims, Retail Sales and Business Inventories on Thursday, and Michigan Sentiment on Friday.

Click here for a summary of Wachovia’s weekly economic and financial commentary.

Markets

The performance chart obtained from the Wall Street Journal Online shows how different global markets performed during the past week.

Source: Wall Street Journal Online, February 6, 2009.

In a world faced with untold uncertainty, my concluding thought today is borrowed from Briefing.com, who says that the situation reminds them of a scene in the Oscar-winning movie Terms of Endearment where Shirley MacLaine’s character is confronted with news from a doctor that her daughter has a malignant tumor. Upon hearing this, she asks what she should do. The doctor responds that she tells family members “to hope for the best, but prepare for the worst.” To this McClain’s character responds, “And they let you get away with that?” Don’t we all feel like the doctor these days?

That’s the way it looks from Cape Town.

Comments

[Jim Hawthorne:]

Thanks for another great analytical submission!

As you point out, there indeed are glimmers on the horizon; some of hope and others of deepening despair! It seems that at the moment, more are seeing the thin threads of the silver linings than the gathering dark clouds!

We could get a 'hope-based' violent bear market rally out of this yet, but I wouldn't bet the farm on it! Times call for disciplined and nimble trades in a trader's market, as the 'greed/fear' tug-of-war is in full swing! Good luck to all!

Feb 08 07:33 AM

[nasdog:]

and the band played on= Titanic

Feb 08 09:03 AM

[Doug Poretz:]

Great analysis. But I am waiting for another analysis that I believe is more important and more alarming. How about an analysis of how close we are to the conditions that existed in France prior to the French Revolution? How about economic riots in Eastern Europe? How about protest marches in Japan by the "temp" workers who are losing their housing? How about the large and broad disatisfaction of the middle class? How about the increasing antagonistic divisiveness of hardsh language of class vs class? How would such a revolutiuon occur in the Internet age? Shouldn't we be worried about the prospects of a global economic class revolution where a new type of community can be created on line without regard for time, language., geography or other borders, requiring little money and some basic social media skills? I think it's time to start worrying about much more than an economic crisis -- as dire as that may be, it pales in comparison to what MIGHT be

Feb 08 09:33 AM

[Terry Mock:]

There's a Reason for the Pessimism...

Humbled Masters of the Universe
www.sldi.org/newServic...

Founded in 1971, the World Economic Forum meets annually in Davos, Switzerland to bring together top business and political leaders as well as intellectuals, economists, journalists, and others. Its recent 2009 meeting attracted over 2500 participants from 91 countries, including over 1170 CEOs and chairpersons from the world’s most powerful companies.

This year’s official Davos theme - “Shaping the Post-Crisis World” – might well have been – “How could the giants of capitalism have been so stupid?” For many, Davos this year was “where the pent-up dismay and anger over what Wall Street wrought boiled to the surface” despite efforts to contain it. The rock stars here this year, surrounded by adoring fans, were two economic analysts, Nouriel Roubini and Nassim Nicholas Taleb, who saw the disaster coming before most everyone else, as documented in this column previously. Implying but not naming America, China’s Wen Jiabao said the financial crisis was “attributable to inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit.”

Back in the US, the news about our local leaders wasn’t any better. Time magazine profiled iconic Palm Beach County as “The New Capital of Florida Corruption” In just the past two years, four city and county commissioners have been convicted of federal corruption charges related to “pay for play” land development schemes, and a fifth could soon join the others in serving time. While in power, these public officials “alienated the general public and took a haphazard view of development — a common South Florida practice that’s indelibly tied to helping those companies and private interests that supported them.” Unfortunately, this practice is not limited to one area of the country, or one political party. According to the current Palm Beach County GOP Chairman, “I think that what everyone has realized, the general reaction is, America has a problem. We are corrupt from coast to coast and border to border.”

Back room deals and corruption, perceived and real, often inhibit progress and change. In a transparent and public proposal offered to President Obama’s administration, SLDI has offered a public-private partnership, its Sustainable Land Development Best Practices System, and the breadth of its research and collective knowledge to combat the country’s economic woes, enhance environmental stewardship and increase social responsibility - all at the same time.

Your participation and comments are welcome.

Terry Mock
Executive Director
Sustainable Land Development International
SLDI.org

Feb 08 04:00 PM

[chistletoe:]

Governments everywhere are jumping on the bandwagon of "dramatic stimulus",
with the US government in the lead,
without giving a thought to the basics of what they are actually doing.

China and Japan will be net sellers of US govt debt instruments
in order to raise capital to inject into their internal systems.

But the US Govt is borrowing capital at a rate of 10 times as much as it ever has in the past and indications are that the leaders intend to continue in this direction.

The basic result is that there is much less free capital available for productive investments for growth
and the governments of the world intend to borrow virtually all of it
and put it to such uses as financing more wars,
buying worthless mortgage securities,
paying unemployment benefits (in other words, paying people not to work)
repaying rich bankers for their scandalous contributions,
and so forth.
It is a subscription for the downfall of civilization.

the next thig to happen is that interest rates will be rising, and rising, and rising
as faith and trust in our governments erodes faster and faster.
This will crush any future genuine production and growth.
there will also be growing civil unrest.

I used to hate being short when I was young,
the big boys teased me mercilessly.
But I sure am glad now!!!!

Feb 08 10:28 AM