Stock Markets Enjoy A Perverse Relief Rally

By: PaddyPowerTrader

Friday saw a “sell the rumour, buy the news” reaction to another very weak payrolls number from the US. A perverse market rally occurred after the headline jobs losses number was not worse than the reported minus 651k. But the back revision to the previous two months totalled a further minus 161,000 suggesting to me that this number will itself be subject to a possible major upward revision. The “official” unemployment rate climbed to 8.1%, though as many point out, the real rate of unemployment is considerably higher .

Today's Market Moving Stories

• Overnight, Japan reported its unadjusted current account balance was in deficit by Yen 172.8bn in January - the first negative reading in 13 years and in fact the worst deficit Japan has ever seen. The market had been expecting a shortfall of Yen 15bn. This was driven by a whopping 46.3% yoy decline in exports. That dismal current account balance didn't do much for the Nikkei , which dropped 1.2% to take the index to a 26-year low. Also note the DIRE warning from the Asian Development Bank that the worldwide plunge in assets may have reached $50trn (that's the equivalent of one years global GDP …be very afraid!)
• In a run a flag up the pole and see who salutes interview, Larry Summers, Obama's top economic adviser, urged world leaders to pump public money into the economy in a co-ordinated effort to boost demand and lift the world out of recession . He said the urgent need for a short-term increase in spending by governments temporarily overrode the longer-term goal of tackling the global imbalances many economists believe caused the financial crisis. His comments, ahead of next month's G20 summit in London, make it clear that the US administration wants industrialised nations to share responsibility for engineering a global demand-led recovery and does not believe this burden should fall on China alone.
• The extraordinary saga of the multiple bailouts of AIG is also a de facto rescue of AIG's counterparties, include Goldman Sachs and Deutsche Bank. So, the American tax payer is partially bailing out Germany's largest bank. The WSJ article says the beneficiaries include at least two dozen financial institutions that have been paid $50bn for the settlement of credit default swaps. These banks include Goldman Sachs, Deutsche Bank, Merrill Lynch, Société Générale, Morgan Stanley, Royal Bank of Scotland and HSBC. The NY times also has a read it and weep story on the farce.
• Late to the wake for the global economy as ever, the World Bank is finally predicting that the planets economy will shrink this year for the first time since WWII.
• There's a bit of chat about the potential for a change in the mark-to-market rules which have caused the reporting of such large banking losses in the last 12 months. Although a suffering bank stockholder would love this to be true, I'm not so sure a change is in the offing. It would mark a new low in short term thinking and would create the kind of Zombie banks that blighted Japan for a decade.
• It's worth noting that although US equities managed a mildly positive close Friday, this weekend saw further discussion regarding the viability of GM (a number of calls for it to enter Chapter 11). As a result, US stock index futures have been under downward pressure in Asia.
• The only really positive reading I chanced upon was this rather well argued jewel that recovery may come sooner than we all think . But as dividends become confined to a historical footnote there are many heavyweights out there arguing the opposite.
• There are mercifully no major data releases or events today.

Lloyds Moves Into Government Control… Who Is Next?
How ironic is it that at the start of horse racings biggest jump festival, Cheltenham week, that the Bank whose symbol was the Black Horse is being led off to the knackers yard. Yes the weekend has seen another major UK bank (Lloyd's) slip into majority public sector ownership. The British taxpayer is now the less than proud owner of 75% and will have the dubious pleasure of guaranteeing £260bn of the banks assets.

This is not a major shock, nor does it really change the key question in the UK, which is whether the shift to quantitative easing will prove to be the catalyst for recovery. The news is, however, more cannon-fodder for currency markets, always happy to give sterling a good kicking. The focus now switches to Barclays who will now start talking to the government. This process may be more protracted as my guess would be the terms offered will, first up, look too penal for the board to swallow. Note HBSC is under pressure this morning on continuing worries about further write-offs at their US unit and the plain fact that rights issues are poison to share prices in the current environment.

Irish Equities

• Tullow Oil announced that the Tweneboa-1 exploration well offshore Ghana, in which they have a 50% stake, has discovered a significant highly pressured light hydrocarbon accumulation. A considerable success. Separately, they announced that it has finalised arrangements for $2 billion of new reserve-based lend debt facilities.
• Origin has come in with very impressive interim results with operating profit up 35% with a surprisingly healthy contribution from agri-nutrition which grew 54%. EPS at 11.17 cent is a 19% growth rate. The company said that they are reviewing their zero dividend policy.
• Origin's parent company Aryzta results were resilient, with an impressive 16.8% rise in EPS lifted by a strong performance from their North American operations. This should help to stem the recent share slide which had priced in a more bearish outcome for both Origin and Aryzta.

And Finally… The New Citibank

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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