February 26, 2009 --- Bank vs. Sovereign Stress Test
Overnight, Bernanke sparked a rally as he re-iterated that full nationalization of banks was not an option, while Obama then sparked a sell-off as he talked about increasing regulation…My doubt is that SPX can stand above 743 for long? …Macro wise, data continue to be disappointing. If German 4QGDP (-1.7% yoy) and UK 4QGDP (-1.8% yoy) are not way out of expectation, then HK 4QGDP (-2.5% yoy) and Singapore 4QGDP (-16.4 yoy) should indicate the worst has not over in Asia. I also saw Bank of Thailand cuts 50bps as expected to 1.5%. US Jan existing home sales fell 5.3% to 4.49m (cons 4.79mn), much weaker than expected. This is especially disappointing since Dec pending sales rose 6.3%.
But what really concerns me now is not the Bank Stress Test, but the Sovereign Stress. Overnight, I saw Ukraine’s credit rating was cut two levels by S&P, Latvia was downgraded to junk, and CDS for US govt crossed 100bps for the first time (was just 20bps last Sep)… Watch CDS of Korea and Indonesia in Asia for signs of the stress creeping back to Asia…In addition, the drop in Japan GDP started the turn in JPY and now I would expect more JPY weakness as exports collapsed (-41.1%). MTD, JPY fell 7.4% vs. USD and EUR, 8.8% vs. GBP, 9.2% vs. the NZD and 10.2% vs. AUD…My focus here is to be on how NKY to JPY trades and how China fares.
Local market wise, I think today is likely to be another day without direction as choppy price action O/N indicates uncertainly and the lack of visibility and consensus in the markets. In China, State Council yty approved stimulus package to boost the NFM an logistic industries, completing the 1st round of massive support to 10 key industries…I wait to see another catalyst, other wise stay put is my best choice…
Overseas Market Reviews
Overnight, equity gained in Asia (+2.7% in Japan) and UK (+0.9%) but decreased in EU (-0.6%) and US (-1.1%). UST yields climbed with 2yr popped 10bp to 1.07% and 10yr up 13bp to 2.93%. 1MWTI price of oil jumped $2.54 to $42.50/bbl, above $40/bbl for the first time in more than 2 weeks. Industrial metals and agricultures increased by about 2% wow. Meanwhile precious metals prices have actually decreased about 2% versus a week ago. USD vs. YEN strengthened another 0.8% to 97.4, higher 8% in February. USD also ascended 1% against EUR to $1.272, up 0.7% in February.
