Tough week ahead

March 30, 2009 — Mitul Kotecha

It looked as though it all went wrong today as the bad news just kept on coming. Following reports on Friday that JP Morgan and BoA had a more difficult month in March following a stronger start to the year, reports that UBS would be shedding thousands of staff and would announce billions more in writedowns as well as news of the takeover of a Spanish regional bank by the Bank of Spain hit market sentiment hard. Topping all of this were comments by the US administration that some banks would need more capital in addition to that already provided. The administration also said that bankruptcy may be the best option GM and Chrysler.

This sets up a difficult week ahead, with risk aversion set to rise further and the news unlikely to get any better. Economic news is likely to add to the market’s gloom as US releases such as the ISM manufacturing survey for March and the jobs report will likely reveal further deterioration. Expectations for another hefty drop in payrolls in March could see a total of over 5 million jobs lost so far in the current cycle with many more to go.

The news in Europe will not be much better and as today’s Eurozone sentiment indicators have shown the outlook for the economy remains gloomy. The ECB is likely to cut interest rates but will refrain from embarking on the quantitative easing policies followed by other central banks such as the Fed or BoE. As risk aversion rises the USD is set to continue to strengthen against most currencies this week.

Posted in bank rescue, central banks, Currencies, Economics, equity markets, Europe, Financial crisis, UK, US, US administration. Tags: , , . 6 Comments »

Running out of steam

March 25, 2009 — Mitul Kotecha

The euphoria in markets over recent days appears to be fading but only after a fairly solid rally in equities amounting to around 20% in some stock indices from their lows. Financials have led the gains over recent weeks helped more recently by a warm reception to US Treasury Secretary Geithner’s plans to fix banks.

Although I am doubtful about the staying power of the recent improvement in market sentiment I have to admit that there are clearly positive steps in action in the US both from the Fed and the US Treasury.  In fact the US authorites have gone all out to get things turned round.  This appears to have put a floor under risk appetite for now. 

Ok there are still a lot of questions to be asked such as how quickly the Geithner’s bank plan will work or whether banks will be unwilling to offload toxic debt at a significant loss or whether the deal is a raw one for US tax payers who seem to be bearing most of the downside and not too much upside if things go well.  All of that aside something is better than nothing even with its faults.

As for equity markets this still smells like a bear market rally or put another way a dead cat bounce.   I could be wrong and will be happily eat my words but I can’t see how the rally can be justified given the struggle ahead for both banks and the economy.   At best, what to expect is a period of high volatility before a real recovery arrives. 

Posted in equity markets, Financial crisis, US, US administration. Tags: , , , , . Leave a Comment »
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