Risk Aversion Returns To Haunt Stock Market

By: PaddyPowerTrader

It's now official; the horrific US retails sales numbers yesterday confirm that for many consumers Christmas was indeed cancelled. The price action in equity markets tells us that the New Year is less “hey ho, hey ho” and now “I owe, I owe, it's off to sell stocks we go”. Worth noting is that the index of banking stocks plummeted through the lows of November 2008 yesterday. There really was nowhere to hide with the broader S&P 500 and the NASDAQ faring even worse in terms of percentage declines.

The malaise continued overnight with Asian stocks under severe pressure after news of a collapse in Japanese machine orders, down 16.2%. This spells real trouble for capital investment. So seems we are set for our 7th straight down day in Europe today.

Today's Market Moving Stories

• The WSJ is reporting that cheeky Bank of America are set to go back to the well to ask the US taxpayer to stump up billions more to “smooth” their takeover of Merrill Lynch. As I have said before, it looks like they have bitten off more than they could chew. Indigestion is proving expensive as there are reports that BoA even wanted to scrap the takeover when they realized the extent of Merrill's loses. So much for doing their due diligence beforehand!
• The Federal Reserves Beige Book survey of soft anecdotal evidence for the 12 Districts was distinctly downbeat. Note in particular how the extent to which Commercial Real Estate (CRE) is now being crushed.
• Corporate news in the last 24 hours has been equally gloomy whether one focuses on retailers going belly up , Nortel going wallop or Motorola being in trouble . The scale and unremitting nature of the grim news flow is really killing sentiment.
• Fears of rights issues from Barclays and HSBC and yesterdays bombshell losses reported by Deutsche bank put the skids under the sector and will keep financials under pressure today.
• News that the public face of Apple, CEO Steve Jobs, will take medical leave until the end of June will certainly keep the share price under pressure today.
• Ireland's CRH yesterday confirmed that it will no longer go ahead with the $540m acquisition of Pavestone Group, which was first announced in March 2008. The deal was scuppered by the US Federal Trade Commission which earlier in the day had filed a suit to block the proposed acquisition on competition grounds. The news will be disappointing to CRH from a business perspective, although clearly the Group's balance sheet stands to benefit from the fact that net debt won't increase on the back of the failed purchase.

More Worries For Automakers As European Sales Crash
December's auto sales were 18% down. But they were bolstered by two additional working days, meaning that the run rate decrease was closer to 25%. This brought the overall decrease in European volumes in 2008 to 7.8% with the decrease relating almost entirely to Western European markets (notably Spain, Italy and the UK). Eastern Europe is performing better, albeit the region has shown some weakness in the last couple of months.

In terms of market share the big winners over the course of the year were VW up to 20.6% from 19.8% in 2007 with GM falling 0.6% to 9.6%. There were few other significant moves with Fiat, Daimler and BMW all being small winners with Toyota and Peugeot both losing market share in contrast. Clearly moves in market share were though overshadowed by the broader market moves with all players in the sector feeling the pressure with even VW posting a 4.4% fall in volumes.

Market weakness indicates that unless economic sentiment improves markedly in 2009, rather unlikely, 2009 will post a larger decrease than 2008, with a double digit decrease looking a reasonable assumption.

Data And Earnings Today
Today's highlight will be the 12.45 ECB (rate cut) announcement followed by the 13.30 stand-up routine from J.C. Trichet. A 0.50% easing is widely expected and the press conference will be watched closely for hints of a pause in the rate cut fest cycle. A cut of anything less than 0.50% will indicate that those ivory tower dwellers from Frankfurt that constitute the ECB council still remain in denial. We have seen a hideous slew of economic data since their last rendezvous with even Germany falling off the cliff.

From the US we get PPI (wholesale prices) with an expected –2.0% decline and at 13.30 there is weekly jobless claims (-503k) released. Later the Empire (-25) and Philly Fed (-35) surveys are out, neither of which are likely to make for pleasant reading on the back of last nights very downbeat Beige Book.

The once Teflon JP Morgan report their quarterly earnings today before the open and Intel later in the day. The once mighty banking supermarket Citibank reports tomorrow with the market braced for another set of horror show numbers.

And Finally… Pass The Parcel

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

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