February 03, 2009 --- We Are Caught Between
Feb09 starts with a few signs of tentative optimism in US -- BTE headline Dec personal income (-0.2%), spending (-1.0%) and January ISM (35.6). But in details, the relative decline of spending over income, along with downward revisions to prior months should temper any optimism. In addition, as spending is falling even faster than income, the saving rate rose to 3.6%. For the third month in a row, core PCE inflation was flat.
Credit side, Fed’s SLOS shows that credit continued to tighten in 4Q, though not as fast as 3Q08. For larger firms, the % of banks tightening standards for COM/IND loans dropped to 64.2% from 83.6%; for smaller firms from 74.5% to 69.2%. CRE loans saw a similar movement. Demand was extremely weak. the net percentage fell to -60.4% from -16.7% from for large and medium-sized firms. Demand for mortgages did not fall as rapidly as 3Q as the net percentage moved from -51.9% to -9.8%. I think this was due to the pickup in mortgage refinancing as rates fell in response to the Fed's decision to buy mortgage-related assets.
Other headlines worth for a note is Korea’s exports tumbled by a record 32.8% in January, foreshadowing a deepening slump in Asia’s export-driven economies. Shipments fell by the most since 1957, and at almost 2X Dec’s 17.9% decline. EU reported January PMI Manufacturing 34.4, WTE…I think the big picture is that global LEI still suggests we are facing the harsh realities – 1) Job cuts from financial service and retail companies remind me that millions more are likely to loose their jobs; 2) Lower earnings estimates and shrinking planned Capex remind me that the real economy and corporate earnings aren't near a bottom; 3) Loan data reminds me that credit, despite extraordinary actions taken by the Fed, remains tight; 4) Higher LIBOR fixings remind me that credit risk is still a real cause for concern. So we remain doubly caught -- between the actions of central banks and politicians furiously fending off a total economic meltdown on the one side, and a worsening economic and corporate picture on the other…There is just no easy way out of the debt deflation as it was in Great Depression.
Overseas Market Reviews
Overnight global equity prices dipped 0.9%, down 4.3% over the past 3 days. Looking around, equities declined 1.5% in Japan and 2.4% in EU, while US were flat. Elsewhere, UST yields declined with 2yr slid 6bp to 0.88%, 10yr fell 12bp to 2.72%, and 30yr dropped 13bp to 3.47%. Despite the large swings in Treasuries over the past week, US 30-yr FRM rates have been fairly stable—between 5.33% and 5.40%, according to Bankrate. 1MWTI oil declined $1.60 to $40.08/bbl. A barrel of oil has ranged from a low of $35.40 to a high of $48.81 this year. USD dipped 0.3% vs. EUR today to $1.285 and 0.5% against YEN to 89.5.
