Tech Stocks Trump Banks But Possible Trouble Ahead

By: PaddyPowerTrader

A strong performance from Intel, Amazon and Blackberry maker Motion masked what was another very bleak day for banking stocks with Citigroup -15.5% to below $4 and BoA - 20% to levels not seen since 1991. With Citi trading well below the key $5 trigger point, many fund managers will be obliged to dump the stock at month end rebalancing as they are precluded from holding stocks who have cheapened that much. Déjà vu; recall the Lehman death-watch?! For BoA the wider market is fretting that further taxpayer capital injections mean further dilution and more write offs forcing other banks to follow suit.

In Japan, Hitachi weighed on the broader Japanese market after a Nikkei report said the firm will book an annual net loss of more than $1.1bn due to falling microchip sales. Toyota lead the gainers after the company said it will cut production at several North American plants and aims to cut inventory by half in the second-quarter. Toyota rose 3.4% while rival Nissan Motor climbed over 1% on reports it plans to move some production to Thailand in order to cope with falling demand and a stronger yen.

Today's Market Moving Stories

• Bank of America gets a bailout of it's bailout with a massive new package totalling a mind boggling $138bn including the backstop.
• With regard to UK banks there is mounting press speculation building up again regarding a “ bad bank ” solution. Discussions are expected over the weekend. Pass the Prozac.
• Societe Generale's much followed equity guru Albert Edwards latest missive implores investors to bailout of equities as his technical indicators have turned decidedly bearish. He's looking for a nice round 500 on the S&P 500. He believes the US is headed for a depression on the back of China imploding and devaluing the Yuan, which then sparks a trade war leading to a re-run of The Great Depression.
• Even Dr Doom Prof Roubini is not quite as gloomy as Janet Yellen, the president of the San Francisco Fed, whose latest speech points one of the grimmest pictures of a global economy on the verge of depression.
• What of oil prices? In its January report, OPEC said it now expects their production in 2009 to fall 1.4 million barrels per day to 29.5 million. OPEC also sees a “major contraction” in OECD demand in 2009, including a 1.1 million bpd decline in U.S. oil consumption. Economist Richard Felson said OPEC's January report provides further evidence of a global economy in recession. Many OPEC member states are hoping the cartel's cuts will boost prices back above $50 per barrel sometime in 2009. Global oil demand fell in 2008 for the first time since 1983. Could the world see back-to-back yearly declines in oil consumption?

Anglo Irish Bank Nationalised
It had been brewing for a while but a silent run on deposits led the Irish government to step in. Trading in Anglo shares has been suspended but the legal framework falls short just now. Ireland will debate legislation Tuesday next week so we will have to wait until that to see the precise outcome for subordinated instruments and CDS.

The Irish government statement issued last night says that Anglo is solvent, although note that the planned €1.5bn capital injection has not yet been made. They will continue to trade ‘normally' and pay obligations as they fall due.

To some this is very much like the Bradford and Bingley situation. But I feel it's more a wind up / rundown situation which will take years. Kind of copper fastens a pending sovereign downgrade from AAA for Ireland? Note the wonderful timing; Fitch downgraded all the Irish banks yesterday.

The Euro Tortoise And The US Hare
Despite recent cautious rhetoric, the ECB's hand has again been forced as they were overtaken by events. With the Eurozone economy in freefall and a period of deflation now seemingly inevitable, the ECB cut rates to an all time low of 2% yesterday. With the next rate setting meeting three weeks away, the ECB seem likely to pause for breath (not that they have been running that fast) before taking two more tentative baby steps of 0.25% to reach a terminal rate of 1.5% by May.

Events have caught the ECB council asleep at the wheel repeatedly in this crisis and merely demonstrated how far they are behind the curve. Note Trichet said that the ECB's balance sheet has doubled in size, so Quantitative Easing then by the backdoor.

Data And Earnings Today
Today's data is highly US-centric. December's CPI should see the headline inflation continuing to be pulled down by falling energy prices, while Industrial Production should reflect the dire employment situation with more declines in output. Meanwhile, January's provisional Michigan confidence data is likely to show sentiment continuing to plumb the lower depths of the series.

Citigroup's earnings are out today. Consensus is for EPS of -1.08, but again, there is no confidence in the consensus.

And Finally… For A Fair And Balanced View In A Fox News Kinda Way

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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