財經觀察 1660 --- 07Jan 2009: Believe in Future?

07Jan 2009 --- Believe in Future?

Watching the overnight US markets, I had two thoughts there – 1) manufacturing (32.4 vs 35.4) continues to slump significantly even as services showed some stability (40.6 vs. 36.5). Fed reaction to economy dominated by fear of a deeper slowdown, making them happy to promise low LT rates; 2Bad headlines and good price action suggests a lot of faith in stimulus and FED? Not mentioning the bankruptcy of Lyondell to Alcoa 15% job cuts to IBM warning of job cuts, we saw horrible pending home sales (- 4% MoM) and weak factory orders (-4.6%). I think the message is that the economic data is dreadful, the government promises staggering and the market wants to believe in the future. 

The views on 2009 are quite mixed and I find some famous mind – 1) Byron Wien, who correctly predicted a recession would drive stocks lower last year, said the market hit a bottom in 4Q09 and government efforts to bolster the economy should help spur a 33% rebound in S&P; 2) Wien, chief strategist at Pequot Capital and former strategist at MS. “in the 1930s the policy responses were almost invariably wrong. And here the policy responses, at least as they appear, look like they’re very right to me” ; 3) Paolo Pellegrini, the Paulson & Co. PM who made +$3bn last year said he will avoid stocks in 2009 after the S&P’s 38% loss last year.

FOMC minutes -- Dec Minutes showed discussion on a few elements that go beyond what was explicitly mentioned in the FOMC statement, including 1) the need to monitor inflation expectations for "signs of disinflationary dynamics"; 2) the potential advantages and disadvantages of setting quantitative targets for bank reserves or the monetary base. On the inflation front, some saw significant risks that inflation could decline and persist at "uncomfortably low levels", thus inflation expectations would be especially important going further. On the economy, the Fed staff forecast was revised down sharply for 2009, with a moderate recovery still projected in 2010. Real GDP for 1H09 was to fall "much more sharply" than anticipated, improving in 2H from monetary and assumed fiscal policy actions. Full year 2009 GDP was therefore expected to be negative

To HK market, one of the interesting observations yesterday was the strength of the expressways/ Infrastructure – Zhejiang (576) +7.5%, Shenzhen Investment (152) +5.6% and NWS (659) +5.6%. This strength fits the theme of defensives and dividend yield. Looking ahead, speculation on the placements of Chinese financials will flow around, along with a FTSE rebalance！One thing to keep an eye is the micro earnings as over 100 main-board listco in HK warned that their 08 earnings will show a decline or even a loss…Question is how much is in the price? 

Oversea Markets Review

The overnight gains on global equities were regionally broad-based: +0.4% in Japan, +1.8% in EU, and ~=1% in the US. UST yields did not move much with 2yr flat at 76bp and 10yr slipped 3bp to 2.45%. US mortgage rates have resisted moving up alongside UST yields, remaining low at just 5.33% according to Bankrate. 1MWTI oil went down a touch to $48.58, while industrial metals and agriculture prices jumped about 4%. USD edged higher against both YEN and EUR at 93.6 and $1.354, respectively.