Stock Markets in Christmas Wind Down Mode

By: PaddyPowerTrader

Markets are ending this awful year with a whimper as they drift lower in thin volume. Investors are taking some money off the table to buy better (heavily discounted) last minute presents. Sentiment has been further soured by more bad news from the auto sector. The previously immune Toyota have warned on profits for the second time in seven weeks. The market is left to wonder what is the point of spending billions of taxpayer's wedge on basket case Detroit if Toyota can't even win. Then we have the hurdle of all those Madoff redemptions to cope with in early '09.

Today's Market Moving Stories

• The Hang Seng and Chinese Markets are under pressure despite yesterday's 0.27% rate cut as investors were hoping for a more daring reduction in official rates.
• So who is next in the never ending bailout queue I hear you ask? Well step forth the US developers . But some people aren't so keen on the idea.
• In the unkindest cut of all, the debt ratings of the Big Three auto makers were cut by both the leading rating agencies (S&P's and Moody's) yesterday.
• We learn that UK's HBOS and RBS “were near collapse” in October.
• News on layoffs Stateside just keeps coming thick and fast. Unisys says that it plans to take “aggressive actions” to reduce costs, which will include laying off about 1,300 workers. It also says that it will forgo 2009 salary increases in most of its markets and seek reductions in third-party expenses and facility consolidations. Caterpillar says that it is cutting white-collar pay by up to 50% and offering buyouts to as many as 25,000 US employees. Textron says it will eliminate 2,200 jobs worldwide.

What Needs To Be Done, According To Germany
Germany's ever chatty finance minister Steinbruck is playing up the role of the state: “in the age of globalisation, we need to find a new balance between financial markets and government.”

He suggests five goals be implemented:

1. Strengthening of financial market transparency and accountability;
2. Enhancing regulation;
3. The protection of investors and the avoidance of conflict of interest;
4. Reinforcing international cooperation;
5. Reforming international institutions, for instance the role of the IMF.

Steinbruck ran through the various tax and expenditure measures Germany is using to negotiate through the crisis. But he made the point that extensive debt-financed spending or tax reduction programs were not a suitable means to overcome the economic difficulties (i.e. a dig at the UK there). He said it's not certain they would accelerate the recovery and regardless they would likely leaves the middle classes with a substantial burden in years to come.

Data Today
The US calendar is busy today, though many releases are final estimates and are forecast not to change. Housing data, both existing home sales and new home sales, are expected to fall yet again in November, underlying the dire state of the housing market.

Also of interest will be Core PCE inflation, which is expected to moderate to 1.9%, putting it back into the Fed's “comfort range” for the first time since September 2007. With headline inflation in headlong retreat of late because of base and commodity price effects, the Fed will be trying to make sure that the underlying price level does not come under undue downward pressure. This latest down-tick should not raise too many alarm bells at the Fed, especially with policy-makers committed to leaving rates at “exceptionally low levels” for some time. However, sharp falls towards 1% in the months ahead would be altogether more troubling.

And Finally… My Pick For The Worst Video Of 2008
An ill judged attempt by some dinosaur bankers to mock reality and pretend that its business as usual. This isn't even ironic but set for cult status methinks.

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

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