Friday Outlook: An Enigmatic Bounce

by: The Mole

The performance of the U.S. markets over the last week has been an enigma. But I feel that when they open fully for business come Monday (after the extended holiday), it will indeed feel like the Pilgrims upon landing at Plymouth - grateful that they have arrived, but fearful of the winter ahead.

Today’s Market Moving Stories

  • The FT thinks that the ECB will dock another 50bps from rates next Thursday. But with the dramatic fall in headline inflation and the economy going from dismal to diabolical, methinks there is just a sniff of something more festive from the retired Monetarists.
  • In just two days, Morgan Stanley, JP Morgan and Goldman Sachs have sold a cumulative $1.25bn of new government guaranteed bonds as part of the FCIS’S Temporary Liquidity Guarantee Program. I know it’s hard to keep track of these myriad of schemes.
  • Note the SPIKE in LIBOR (inter bank rates) yesterday. It is dawning on the market that the credit crunch is still very much with us and the unsightly scramble for year end funding is gathering pace. It could get very messy.
  • Figures from Japan overnight show industrial production falling off a cliff (down 3.1% in October). The fear is that they are slipping into another deflationary spiral. Finance Minister Nakagawa urged the Bank of Japan to consider further steps to support the flagging economy.
  • Staying in the Far East, according to the latest Xinhua Finance/MNI China Business Sentiment Survey (bit of a mouthful that), Chinese businesses have slashed production and capacity. Mmm, this could send commodity prices into a fresh tailspin!
  • OPEC’s motley crew are meeting in Cairo this weekend. Speculation is that they may agree to a killjoy production cut. However falling demand is likely to offset any such tactic.
  • It’s Black Friday today, a key day for U.S retailers. The day after Thanksgiving is traditionally seen as the start of the key holiday shopping season and a bellwether for December store sales. The numbers for today's till takings will be pored over and are likely to make grim reading.

Financial System Collapsed?
Never one to take a step back or mince his words, here’s the bold Willem Hendrick Buiter:

We have no longer just a crisis in the financial system. The western financial system we knew has collapsed. If I may paraphrase that great ensemble of Nobel-prize winning financial wizards, Monty Python’s Flying Circus.

“This financial system is no more! It has ceased to be! ‘It’s expired and gone to meet its maker! ‘It’s a stiff! Bereft of life, it rests in peace! If you hadn’t nailed ‘it to the tax payer’s perch it’d be pushing up the daisies! ‘Its metabolic processes are now ‘istory! ‘It’s off the twig! It’s kicked the bucket, it’s shuffled off its mortal coil, run down the curtain and joined the bleedin’ choir indivisible!! THIS IS AN EX-FINANCIAL SYSTEM!!”


  • THE UK taxpayer is now the proud owner of 58% of the once mighty Royal Bank of Scotland after the rights issue failed miserably. The bold Scots certainly bit off more than they could chew with the purchase of Dutch giant ABN AMRO at the top of the market and paid CASH!
  • Commerzbank is to hasten their takeover of Dresdner from insurer Allianz by a full year. Needless to say Allianz is up on this news as Dresdner was quite a drag on performance.
  • Europe’s biggest chip maker STMicroelectronics issued a profit warning.
  • Germany’s largest steelmaker ThyssenKrupp forecast a “significant decline” in sales.
  • A couple of hedge funds in the firing line overnight with Bluebay closing its emerging markets fund and Satellite halting redemptions.
  • John Lewis store sales again came in very soft (down 8.6% YOY).
  • British American Tobacco has won a court case over taxing foreign dividends that leaves HM Treasury with a further hole of £5bn in their budget.

Data Today
From the Eurozone, October’s unemployment rate will be released at 10.00 GMT. It is expected to tick up from 7.5% in September to 7.6%. We also get the flash pan Euro wonderland inflation number for November and it may show a record DROP of 1%.

There is no major U.S. data due today. The NYSE is on a half day and it will probably be horribly illiquid.