Treat the Threat of Economic Turmoil
Last week the Bank of England hit the headlines with an unexpected 1.
5% rate cut.
The move was largely pre meditated as a shock tactic to boost the ailing UK economy ahead of the all important Christmas period.
Spreading the cut over a number of months would have had much less of an impact as it can take many months for the benefits of a rate cut to filter down to consumers.
This is especially the case now with banks being slow to pass on cuts to customers.
The MPC have sent out a message that they are prepared to treat the threat posed by the global slowdown very seriously.
Unfortunately this message is a double edged sword, the euphoria that immediately met the rate cut was short lived and the FTSE soon rolled over and headed back towards the lows of the day.
There is also the possibility that today's rate cut might make it less likely that the MPC will cut again in the near future.
Experts had been calling for cuts of this magnitude over a number of months, but the MPC may have bundled all their planned rate cuts in one dramatic roll of the dice.
It may be some time before they cut again, preferring to let the dust settle on the biggest single cut in a generation.
Friday's US payroll figures were ugly by any measure, with the reported loss of 240,000 jobs slightly worse than expected.
The worse data point to come out was actually the downwards revision to Septembers payroll figures, which pushed September payrolls down from -159,000 to -284,000.
This means that so far in 2008, over 1 million jobs have been lost, most of these have been in the financial sector but the slump is prevalent in virtually every US sector.
On the face of it, it was perhaps surprising to see equity markets rebound so strongly on Friday, especially in the face of accelerating unemployment in the world's biggest economy.
However, the reality is that financial markets are forward looking, which means that most of the time the bad news is already taken into account when it comes.
Friday's payroll figures could have been even worse than they were and judging by the rebound we're seeing, a significant part of the falls on Wednesday and Thursday may have been traders rushing in to sell ahead of Friday's numbers.
The net result is that the preceding two day sell off appears to have overshot slightly.
On the credit markets, libor and credit default swaps continue to improve for the worlds largest financial firms.
The cost of insuring against companies defaulting on their debt is still very high by historical standards, but they have still come down a long way in the last few weeks.
Morgan Stanley and Goldman Sachs still remain a concern while the UK's HSBC currently has the lowest CDS of the remaining major independent banks and brokers.
In short, things have most certainly improved since the dark days of October, but there is a long way to go before we can say safely say that this credit crisis is over.
Next week starts with UK PPI figures and with ECB president Trichet commencing a series of speeches along side other central bankers throughout the week.
The ECB's 50bp cut was largely expected last week, but there were some bold last minute predictions of a 100bp cut.
Investors will be listening carefully for any hints from Trichet on future decisions.
Friday promises to be the week's busiest day with US retail sales and Fed chairman Ben Bernanke speaking at the 5th ECB central banking conference.
Last week Morgan Stanley's European strategist Teun Draaisma commented that stocks were now flashing a "full house" buy signal.
According Draaisma markets have now fully priced in an earnings recession and retail investors, purchasing manager and sell side analysts have capitulated.
Although very early in predicting the recovery in 1998, he wasn't far off in 2002.
His full house sell signals timed the tops of 2000 and 2007 almost to perfection though.
With this in mind it might indeed be the case that markets have already moved to discount the coming recession and are looking forward to what will happen beyond that.
"A bull trade predicting that the Dow Jones Industrial Average will be higher than 9500 in 6 months time could return 102% at BetOnMarkets.
"
5% rate cut.
The move was largely pre meditated as a shock tactic to boost the ailing UK economy ahead of the all important Christmas period.
Spreading the cut over a number of months would have had much less of an impact as it can take many months for the benefits of a rate cut to filter down to consumers.
This is especially the case now with banks being slow to pass on cuts to customers.
The MPC have sent out a message that they are prepared to treat the threat posed by the global slowdown very seriously.
Unfortunately this message is a double edged sword, the euphoria that immediately met the rate cut was short lived and the FTSE soon rolled over and headed back towards the lows of the day.
There is also the possibility that today's rate cut might make it less likely that the MPC will cut again in the near future.
Experts had been calling for cuts of this magnitude over a number of months, but the MPC may have bundled all their planned rate cuts in one dramatic roll of the dice.
It may be some time before they cut again, preferring to let the dust settle on the biggest single cut in a generation.
Friday's US payroll figures were ugly by any measure, with the reported loss of 240,000 jobs slightly worse than expected.
The worse data point to come out was actually the downwards revision to Septembers payroll figures, which pushed September payrolls down from -159,000 to -284,000.
This means that so far in 2008, over 1 million jobs have been lost, most of these have been in the financial sector but the slump is prevalent in virtually every US sector.
On the face of it, it was perhaps surprising to see equity markets rebound so strongly on Friday, especially in the face of accelerating unemployment in the world's biggest economy.
However, the reality is that financial markets are forward looking, which means that most of the time the bad news is already taken into account when it comes.
Friday's payroll figures could have been even worse than they were and judging by the rebound we're seeing, a significant part of the falls on Wednesday and Thursday may have been traders rushing in to sell ahead of Friday's numbers.
The net result is that the preceding two day sell off appears to have overshot slightly.
On the credit markets, libor and credit default swaps continue to improve for the worlds largest financial firms.
The cost of insuring against companies defaulting on their debt is still very high by historical standards, but they have still come down a long way in the last few weeks.
Morgan Stanley and Goldman Sachs still remain a concern while the UK's HSBC currently has the lowest CDS of the remaining major independent banks and brokers.
In short, things have most certainly improved since the dark days of October, but there is a long way to go before we can say safely say that this credit crisis is over.
Next week starts with UK PPI figures and with ECB president Trichet commencing a series of speeches along side other central bankers throughout the week.
The ECB's 50bp cut was largely expected last week, but there were some bold last minute predictions of a 100bp cut.
Investors will be listening carefully for any hints from Trichet on future decisions.
Friday promises to be the week's busiest day with US retail sales and Fed chairman Ben Bernanke speaking at the 5th ECB central banking conference.
Last week Morgan Stanley's European strategist Teun Draaisma commented that stocks were now flashing a "full house" buy signal.
According Draaisma markets have now fully priced in an earnings recession and retail investors, purchasing manager and sell side analysts have capitulated.
Although very early in predicting the recovery in 1998, he wasn't far off in 2002.
His full house sell signals timed the tops of 2000 and 2007 almost to perfection though.
With this in mind it might indeed be the case that markets have already moved to discount the coming recession and are looking forward to what will happen beyond that.
"A bull trade predicting that the Dow Jones Industrial Average will be higher than 9500 in 6 months time could return 102% at BetOnMarkets.
"