My Diary 524 --- Freefall to D-day?

March 03 2009 --- Freefall to D-day?

March roared in like a lion as I see US and global equity markets continue to push to new cycle lows and the latest bout of weakness is being tied to several O/N developments, including another US govt restructuring of AIG ($30bn injection after 61.7bn net loss) and HSBC GBP12.5bn right issues with its US consumer lending business closed. In addition, the prospects for CEE are grim as EU leaders rejected pleas for a rescue package. I think by this stage, we are going to see the limits of what a government can do (even with unlimited printing press) after Citibank and AIG. In fact, US financials (Citi, BOA, Wells and AIG) are all racing to the zero on the share prices. HSBC -20% as well…

Economy wise, BTE Jan personal income and spending did not cheer up market as ISM (35.8), in contrast, continues to suggest that the free-fall in business equipment and software investment is continuing in Q1with a -20-30% yoy alike. The employment component is even more dire, hitting a new historical low of 26.1 (since in 1948), and supports -750K NFP on this Friday…I think the biggest concern remains in Emerging Markets. I think I am waiting for the so-called Depression as I will know it when things get there…Anybody thinks MSCI index dropping 14 of the last 15 days suggest “D” day or we need more evidence, like higher UNE and lower asset prices.

On other assets, credit spreads widened 20bp this morning on Asia on due to bad risk management to the DM economies. Thus, Oil fell 10% as investors doubled down bets on demand destruction. Correlations continue to break down in all markets, with JPY flat even equities melted…Local market will not be pretty as futures here implied an approx 10% fall in HSBC, translating into ~110 pts lower to start due to one stock. Overnight HK/CN ADRs suggest 4-5% down and keep an eye on S&P reports more real estate developers defaults... Bye bye to 12000…

Overseas Market Reviews

Global equity prices nosedived with -4.2% in US and EU, -5% in UK and -4% in Japan. Ytd, stocks are down 19%. Elsewhere, 1MWTI oil slumped $4.61 to $40.15/bbl. Industrial metals and agricultures also declined 2.2% and 3.7%, respectively. As equity and commodity prices declined, USTs jumped with 2yr down 10bp to 0.87% and 10yr fell 15bp to 2.86%. USD continued to rise on TW basis, gaining 4% mom and up 8% ytd. USD closed ytd at EUR1.258 and YEN97.5.