Stocks Hang Onto Gains

By: PaddyPowerTrader

A little banker patter seems to go a long way these days. Yesterday, equities hung in the black thanks mainly to a bravado performance by Jamie Dimon, Chairman and CEO of JPMorgan who talked up his book in a manner we usually associate with bouffant Bill Gross from Pim(p)co. But the vista of a dire retail sales number today is looming large as the US consumer retrenches further. This points to another downbeat quarter for earnings.

Today's Market Moving Stories

• In his upcoming budget, UK Chancellor Alistair Darling looks likely to put the stress on implementing tax cuts and spending increases that are already in the pipeline. He notes that the fiscal stimulus “has now been widely agreed, but now needs to be implemented.” The FT notes that “some ministers believe Mr Darling is coming under pressure from Mr Brown to give the economy another fiscal jolt.”
• German Finance Minister Peer Steinbrueck says that speculation about a possible break-up of the Euro-zone is “completely absurd and very dangerous.” He adds: “I do not think it possible that a country will drop the euro because the costs linked to that would be exorbitant and the country would be extremely prone to speculation… The euro zone is absolutely stable. Speculating that a country is in concrete difficulty with its payments is like playing with fire.”
• Don't be fooled; the horror show is alive and well. The most-read list on Bloomberg.com gives us three salutary facts about the US. Firstly, only 17 homes were sold in February in Greenwich, CT, compared to 75 in the same month a year ago. Secondly, the number of millionaires is down to 1993 levels. Corporate man Bill Gates has overtaken investor Warren Buffet as the world's richest man. Wackiest of all, a 12.1% annualised decline in Japanese GDP (the worst since 1974) was better than expected.
• The Global economy is set to shrink by 1-2% in '09, with Central and Eastern European countries particularly vulnerable. World Bank's President Zoellick believes that “trade will fall by the greatest amount in 80 years,” while the IMF 's Strauss-Kahn also weighed in stating that in 2009 the world would be gripped by “the great recession .” Bleak warnings from policymakers.
• Australia jobless rate jumps 0.4% to a four year high of 5.2% in February, well above the forecast of 5.0%. The RBNZ (New Zealand's central bank) cut its benchmark rate by 50bps to an all time low of 3.0% and signalled the easing cycle was close to an end.
• Taoiseach (Irish prime minister) Brian Cowen confirmed yesterday that an emergency budget will be introduced on April 7th to tackle the huge hole in Ireland's public finances. The key will be how the big three rating agencies (Moody's, S&P and Fitch) react and whether they maintain Ireland's current AAA rating. The markets expect this to be cut, indeed the country's bonds are being priced at the level of Greek debt (which is a single A credit).
• Freddie Mac reported a Q4 loss of just $23.9bn (beating Fannie Mae) and is seeking another $30.8bn capital injection from the Treasury's blank cheque department! And looking ahead to full year 2009, it boldly stated that the haemorrhaging would continue and put us on notice that it expects to need even further taxpayer assistance! It is most worrisome that the Obama administration seems so bereft of ideas of how to deal with the GSE blackhole. It refuses a quick wind up. It is leaving a gaping wound, with gangrene the risk.
• Old habits die hard, it seems, at Merrill Lynch (now owned by Bank of America), with news that it allegedly misled Congress on a decision concerning some $3.6 billion in bonuses. Merrill's lawyers had told Rep. Henry Waxman, in a November 24 letter that decisions on bonuses had not been made even though a decision to speed up bonus payments had been made two weeks beforehand.

More Trouble Ahead For UK Housing
Numis Securities writes that “despite UK house prices already having fallen 21% from the peak, we do not believe that the correction is anywhere near over.” They continue: “Our core headline forecast is that UK property prices remain between 17% and 39% overvalued based on fair valuation. Moreover, history has shown us that when property… which has experienced a price bubble corrects, the price tends to fall below fair value for a period of time, as confidence in that market remains low. Prices could fall a further 40-55% if the over-correction was as bad as the early 1990s, in our view.”

Equities

• In pharma land, the simmering takeover deal of Genentech by Roche has been agreed at $95 a share, making it a $46.8bn deal.
• Oil producers are again under pressure this morning on the back of the 7% fall in crude prices yesterday with Total, Eni, Shell and Repsol all down.
• Giant French retailer Carrefour is holding in there price-wise, despite a 44.7% drop in profits.
• No such luck for jewellery maker Bulgari or potash producer K&S, both of whom are off after reporting big misses in results.
• Former state airline Aer Lingus released disappointing numbers yesterday, which was not that much of a surprise. What really caught the eye and alarmed the market was the very high level cash burn. They really need to get their cost base sorted a la Ryanair if the stock is going to recover from the beating it's taken in order to compete.
• McInerney Group yesterday confirmed that a revised UK loan facility agreement was signed by all parties on 10th March 2009 removing much short term uncertainty. The new credit facility is crucial for the group as its covenant is based on more realistic terms such as sales, cash (the industry norm) and modest reduction in debt. It will enable McInerney to focus on cash flow generation and cost reduction. McInerney will report full year results on March 23rd.

Data Today
The continuing story of evaporating exports will get another chapter today with as the standout figure this morning is German Industrial Production. It is set to make awful reading after the disastrous factory orders data yesterday, down 38% on an annual basis.

Come early afternoon, the markets will be focused on February's US retail sales figures (12.30 GMT, due to the daylight savings time change in the clocks Stateside). Analysts want to know whether the rebound in January was a blip in the downward trend (likely) or the start of a miraculous turnaround (very unlikely). Admittedly, the Fed said in its March Beige Book that “many Districts noted some improvement [in retail sales] in January and February compared with a dismal holiday spending season”. The Redbook and ICSC weekly sales figures also both picked up in February, albeit from very low levels. However, I find it hard to believe that retail sales are undergoing a meaningful improvement at a time when employment, equity prices and house prices are all plunging. It is also notable that large retailers, such as Home Depot and Costco, have recently announced poor earnings.

And Finally… If You Ever Wanted A Reason To Avoid Working In The Sub Prime Sector

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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