G20 Gathering on All Fools Day

By: PaddyPowerTrader

Despite poor data from the Chicago PMI, weak consumer confidence and more dire housing data, stocks jumped back . It turns out that the world decided that Monday's sell-off was just a buying opportunity for bargain hunters? A change may be coming Thursday to “mark to market” from the FASB (see below). The bad news was that we had another negative quarter, but March was an up-month for the broad index readings.

Today's Market Moving Stories

• So the curtains down on Q1 2009 - it's a new month, a fresh quarter and even for some, a brand new financial year. Deflation is fast replacing depression risk as we are most likely past the abysmally negative GDP numbers from Q4 and Q1. Note Eurozone inflation yesterday fell to a record series low with some commentators noting that it could be at its lowest in 50 years (of course comparable stats only go back to the 90's).
• It may be April Fools day but this is no laughing matter. Wakeup and smell the downturn guys. Japan's key headline large manufacturers Tankan Index slumped to a record low -58 in March from -24 in December, with substantial falls seen across the other major categories as well. Total capital expenditure for 2009 is now seen at -14.3% prompting Japanese PM Aso to say that German misgivings towards further fiscal stimulus measures are misplaced and that strong fiscal action was vital for recovery. A further hint of discrepancies heading into the G20 summit. Look for Yen weakness now that the year end has passed and outflows will resume.
• Despite all this glum news Japanese stocks were stronger this morning, likely buoyed by yesterday's announcement of further stimulus. Financials in the Nikkei were particularly strong. Toyota and Honda gained 5% on speculation that they may profit from the demise of GM and Chrysler.
• The rest of the region is also broadly higher. Taiwanese shares were also higher amidst further developments of a new memory chip company being jointly set up by the Taiwan government and Elpida.
• Chinese PMI slipped to 44.8 in March from 45.1 marking an eighth successive monthly contraction.
• The Telegraph reports that it may be “extremely difficult” for European companies to roll over up to £565bn of corporate rated bonds coming due by the end of 2010.
• Disunity ahead of London's G20 meeting already means that expectations have been established at a very low level. If there is to be any agreement it is likely to be reached on more financial regulation.
• World Bank President Robert Zoellick unveiled a $50 billion global trade liquidity program to jumpstart the flow of goods and services between nations once more. The World Bank expects global trade to drop 6% in 2009, its largest single-year decline in 80 years. The fund is designed to bolster trade credit, which had taken a hit with the broader credit market.
• Check out The Economist's new Econoland theme park .
• To compare spread betting costs to stockbroking costs, check out our Spread Bet Vs Broker page.

Changing The Rules Of The Game Or Moving The Goalposts?
The Financial Accounting Standards Board (FASB) meets on mark-to-market this Thursday. The expectation is they will make some changes, but how far will they go? They face a Catch 22 situation. Elimination of mark-to-market rules will be an enormous SHORT TERM benefit to the banks. But if it goes, there will be no reason for banks to sell their bad assets under the public/private partnership as they will remain overvalued. Plus of course it would merely turn us Japanese with the creation of Zombie banks.

It would be a desperate and dangerous development as surely one of the big lessons even politicians must have garnered from this debacle is that investors want MORE clarity and transparency, not less, when looking at financial stocks. Would you trust a bank to value its own assets in secret given the events at AIG, Bear Sterns, Lehman's, the GSE's etc etc. These are the very people who lobbied for deregulation and mark-to-market accounting so they could run their firms with little or no capital and leverage them to the hilt creating the biggest credit bubble the world has ever known.

No Relief In Sight! Isn't This Where We Came In?
US house prices continue to drop like a stone (though location as the estate agents always tell us does matter) with their negative momentum intensifying further in early 2009. The S&P/CaseShiller index declined for the 30th consecutive month in January, falling to a record low of 19.0% yoy . Of the twenty major metropolitan areas included in the S&P/CaseShiller report, all experienced house price declines in January. Regionally, the largest house price declines are being recorded in the West, where resale prices shrank by 30.3% yoy in February.

To gauge the progress achieved so far in the housing price correction, calculate how house prices have moved with respect to their long-term, pre-bubble trend calculated between 1987 and 2004. In the West, the downward correction experienced so far pales in comparison to the increases during the bubble period. The Midwestern house market is struggling with more mundane economic forces. For example, Michigan boasts the highest unemployment rate in the country. New York so far escaped a substantial house price downward correction, but this is likely to change in 2009. The interplay of still bloated inventories and deteriorating labour market conditions are likely to push foreclosure rates higher and house prices lower.

Stocks In The News

• Google is launching its own venture capital fund . Google Ventures takes $100 million from the parent company and invests it in promising start-ups across a variety of industries.
• Hard pressed American Airlines plans to extend its in-flight Internet access to roughly half its aircraft, about 300 planes, over the next two years. Note a German airline, BlueWings, has collapsed with a fleet of nine A320s and a further 20 on order.
• As crude oil heads back down to $48 barrel oil producers (notably BP and Shell) are under a bit of selling pressure this morning.
• Vodafone is on the rise after an upgrade from both Morgan Stanley and Goldman Sachs. Goldman's also cut BT and Italy's Telefonica in the same sector.
• Note also that the all important earnings guidance kicks off this Monday with Alcoa. The question is how downbeat it will be? It may yet again reinforce the bear's argument that this month's bounce was just another false “Cramer bottom”.

Data Today
UK PMI March is released at 09:30 this morning. Conditions remain grim, but other data suggest things haven't got worse, such that the PMI should be broadly steady at 35.

Stateside, the ADP employment report for March will be released at 13:15. It has a patchy record in picking payrolls, but the ADP report should show a 650K drop in jobs. Then at 15:00, there's a whole host of data out. March's US ISM, which should be broadly unchanged at 36, US pending home sales which are expected to be flat and US construction spending. Falling spending should be tempered by a recent improvement in housing and so that construction spending should decline by 1.9%. US vehicle sales for March will be out at 17:00. Sales should be terrible at 9.2mln, but producers have made progress in reducing a still-large inventory overhang.

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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