Stocks Rebound In The Final Hour

By: PaddyPowerTrader

Another wild ride yesterday on the stock market roller coaster. US indices closed higher, though that was only thanks to a last hour rally that took the S&P from a 1.8% loss on the day to a 0.96% gain by the closing bell. Equities started the session weaker because of a disappointing Treasury auction. But then the big gain came from Bank of America (though with its ratings downgraded by Moody's) after its CEO gave an interview to the LA Times in which he said he wanted to start repaying the government's $45bn of assistance in April. Although Goldman has already indicated it wants to get back on its own two feet already, this is the first of the banks that took significant funds from the Treasury to make that claim.

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Today's Market Moving Stories

• Asian stocks continued to power ahead overnight. After recently delivering decent 2008 results , the Industrial and Commercial Bank of China (now the largest bank in the world by market cap ) announced an agreement with Goldman Sachs that would see the Wall Street firm extend the lock-up period on the shares that it owns. This should provide a short-term boost to financial shares in the region.
• Geithner is giving a presentation to Congress today to bring hedge funds, private equity shops and derivative markets under Federal supervision. Greater regulation is a given from this crisis – as is the law of unintended consequences. Let's hope the proposal doesn't snuff out distressed debt buyers and hedge counterparties vital to get to the bottom of this mess.
• On mark-to-market accounting, key US Senator Barney Frank said that banks should not be put in danger just because of mark-to-market rather than real losses. Laying groundwork for the FASB to ease such rules on April 2nd?
• US Federal Reserve voter Yellen was extremely dovish in her assessment of the current economy and its outlook. She said although there may be some moderately positive real GDP readings late in the year or early next year, there remains considerable downside risks. Hence, she said, any forecasts were extremely uncertain. Yellen said unemployment is likely to continue deteriorating for the remainder of this year. Most concerning of all, she said that the risk of deflation will be greater than that of inflation for some time to come. In fact, she said it is possible core inflation holds below 1% for the next few years. She also made a brief mention that she was concerned by the outlook for the commercial real estate sector.
• The best authority on real time global trade data is the Netherlands CPB Institute, which yesterday published its January trade data. Global trade is now down 20% since October . This is not annualised, but actual. That's a faster speed of decline than during the Great Depression, when estimates ranged from a 25-35% decline between 1929 and 1932.
• Global geopolitical risk is back for the region, with agency wires report that North Korea has positioned a long-range ballistic missile on a launch pad on its north-eastern coastline. Japanese PM Aso told his defence forces to shoot down any incoming missile that looks like it would land anywhere near Japanese territory.
• Seems it wasn't a case of Joy to the World, as a former stripper pleaded guilty to orchestrating a massive mortgage fraud that swindled desperate homeowners out of millions of dollars.

That “Failed” UK Auction
The sustainability of sovereign funding is under the microscope once again in light of the failed 40 year UK gilt auction yesterday morning. However, local factors more than anything else prompted investors to shun the offer. Firstly, the auction came on the back of a huge upside surprise in UK inflation the previous day, along with Governor Mervyn King 's overly frank and quite bizzare comments that quantitative easing could be stopped early. Another problem with the auction is the 40Y is an ultra-long maturity with very limited liquidity , whereas a 10Y maturity or lower would be a much easier sell. This maturity is beyond anything that more liquid markets such as the US or Germany offers. An additional problem is of course the extremely low level of yields currently. Nonetheless, it still serves as warning to other sovereigns to offer where demand and/or liquidity are seen to be.

Equity Briefs

• Dell drew back the curtain on a new series of servers aimed at consumers concerned about value. The new devices also perform write functions 91% faster than the last comparable generation.
• GE scored a $300 million contract with PetroChina to build a natural gas pipeline in China. The line is designed to boost China's natural gas usage to 5% of its primary fuel consumption, up from 3.5%.
• Kingfisher's (think B&Q) profit fell 23% on writedowns at its Chinese unit and a big fall in UK sales. It also cut back it's dividend payout.
• Clothing retailer Next also posted a 15% decline in profits, though the dividend was unchanged.
• It was a similar story for another high street name H&M which saw a 12% decline in sales.
• Automakers are stronger this morning, with VW up 13% on the back of Porsche bagging a €10bn credit line, which it is expected to use to buy more of the former. Fiat is also showing well, up over 5%.
• IFG reported full year results showing the significant impact of the slowdown in the Irish property market on its profits and warned that 2009 will be a very challenging year. Revenue at the group came in at €109.3 million, down from €128.8 million, while adjusted operating profit for IFG fell 10% to €20.1 million.
• Northern Food's good numbers (stock up 8%) posted this morning augur well for Kerry's and Greencore's operations in the UK.

Data Today
The US data calendar has a slightly historic feel about it, with the release of Q4 08 personal consumption and revised GDP data. Both are expected to be weak, with the GDP figures revised lower to -6.5% QoQ from -6.2% on the back of lower inventories. Further, initial jobless claims are slated to post another high 600K+ rise.

And Finally… Hey Paul Krugman

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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