My Diary 472 --- The Stubborn ECB!

November 07, 2008 --- The Stubborn ECB!

Global equity markets have swiftly reverted to the fear factor as economic, especially employment, concerns are back on the boil. Overnight, BOE slashed rates 150bps (> EXPT). SNB too surprised with a 50bp cut, But the ECB stubbornly refused to acknowledge the worst financial panic in at least 60yrs by only dropping rates 50 bps. Does ECB foresee a less severe recession ahead of EU? In addition, the rush of central bank rate cuts seems to be a game plan rehearsal for the up coming Breton Woods II meeting scheduled on November 15.

Moreover, all the old correlation trades are coming back: FX, commodities, stocks, sectors (downstream) with defensives up. USD rose against all major currencies, excepfor JPY. Risk-aversion and deleveraging once again dominated price action. The anchor to these is growth expectations falling (again), especially out of China. That said, IMF revised down global forecast in 2009 GDP (US -0.3% vs 1.4%; EU -0.7% vs 1.2%; GER -0.8% vs 1.7%; Jap -0.2% vs 0.5%; China 8.5% vs 9.7%)…China seems the last hope, nut, if you listen to Goldman Sachs China Conference in Beijing, one can easily tell the bearish, even China consumers. Thus, one can see oil prices hit new lows of the move and gold closed about 1% lower. In the US, Oct chain store sales way WTE at -0.9% (cons +0.7%), the first drop in 7mths. if you exclude WalMart, the fall would have been a more serious 4.2%...

Local markets, Asian volumes were very weak on the fall yesterday suggesting that those who bought the week before are hoping that this is a short term setback before stocks go roaring away in Nov again. I do think we would at least test the Mon/Tue bottom in Asia. I think the S&P is set to break its previous low (Guess 770) and HIS to break 11000 in the coming future…It is just matter of time, not hope.

Oversea Markets Review

Overnight, global equity markets tumbled 5.4%, though still up +10% from t27Oct low. Stocks declined 6.5% in Japan, 5.5% in EU, 4.9% in US and 4.6% in the EM. Elsewhere, 2yr UST decreased 6bp to 1.28% and 10yr edged down to 3.69%. USD jumped 2% vs EUR to $1.272 and vs EM currencies, while down against YEN to 97.8. 1MWTI oil fell $4+ today to $60.77/bbl, the lowest price since March 2007.