Stock Markets Retreat Ahead Of U.S. Corporate Earnings Season

By: PaddyPowerTrader

Friday saw a late in the day sell-off of over 200 points in the Dow Jones. This was a reality check for those who tried (in vain) to trade the nonfarm jobs number as not quite as bad as feared . Standing back, while the headline number was not the kitchen sink number some had predicted, the downward revisions to previous months and the uptick in the unemployment rate meant the report was about as bad as it could have been. The major worry for equities remains earnings revisions and daily analyst downgrades which are sapping sentiment and sucking the life out of the appetite for risk.

Today's Market Moving Stores

• The UK government is mulling over giving guarantees for banks main sources of funding MBS (mortgage backed securities) and/or small business loans. Meanwhile the German government is expected to adopt a two year €50bn fiscal package today. The plan would include a “Germany fund” that would issue credit guarantees to help cash starved businesses raise debt financing.
• In the UK the NIESR believe that the economy contracted by 1.5% in the final quarter of 2008.
• The big news from the banking sector is a story that Citibank and Morgan Stanley are in talks to merge their brokerage units. The deal would be structured as a joint venture, but would involve a payment from Morgan Stanley to Citi that would give it the larger stake. Morgan's 8,000 brokers and Citi's 11,000 would create the largest single brokerage in the US, beating Bank of America's Merrill unit which has 16,000 Brokers. Morgan Stanley would have the right over a period of years to increase its stake and ultimately buy all of it.
• In other banking news we learn that the UK taxpayer in now the proud owner of 43.4% of the combined Lloyds / HBoS group after investors snubbed the rights offerings by both companies. The government has been forced to buy 99% of the stock offered at a cost of £13bn.
• Asian exports are collapsing. The latest trade data from Asia are horrifying. There seems to be a collapse in global trade under way. Brad Setser has a good analysis with plenty of charts showing the collapse in trade in Korea and Taiwan , where exports are down 40% year on year. While the always readable Doug McIntyre highlights the plight of China . Remember when they were going to take over the world?
• The WSJ says that US retailers are expected to begin a wave of post-Xmas bankruptcy filings.
• Seems that criticism of the TARP and how tax payers dollar are being spent is on the rise.
• As the Bank of England cuts rates to record lows, here's a nice visual charting the history of their interest rates .

Comment On Ireland's Rating Outlook Cut

Here's a snippet of what RBS had to say about Ireland being moved to negative outlook by S&P last Friday:

“The main point of concern lies in the economic policy challenges the government faces posed by deterioration in key sectors such as housing, construction and financials – housing related taxes have halved in 2008, from 3.8% to around 1.9% of GDP and tales of corporate defaults (Waterford Wedgewood) and exodus (Dell) will only place further strain on government revenue generation going forward. General government debt levels have increased materially the last few years and in particular after guaranteeing bank debt (has taken general govt debt levels to a putative 228% of GDP, although this is of course contingent only). The impact on the banks should hardly be felt, as the market has been pricing Ireland in the same vein as Thailand in recent weeks i.e. a long way off AAA status in any event. It also will not prevent the govt from being able to provide the €10bn allocated to bank prefs as this is coming from the National Pension Fund.”

Equities

• European equity news will be dominated by reports from food giants Tesco and Carrefour.
• The unofficial start of the US earnings season kicks off today with earnings from Alcoa after the close of trading. Recall they rattled the market last week with news of 13.5k pending job cuts and plans to cut capital spending by 50%.
• Another blue chip bellwether stock reporting this week is Intel on Thursday. These numbers will be closely watched as they are often seen as a wider barometer for the health of the tech sector as a whole.

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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