When the main markets began to ‘correct’ in late July – early August many sages and sock puppets were immediately let loose to ‘astroturf’ the airwaves, forums and usual suspect news broadcasts in order to soothe the masses with regards to the impact. One of the most prominent messages was; “well we’re still in positive territory for the year, and hey, this could be a good time to pick up some bargains” Er…OK..whatever..
The UK FTSE 100 is now 12.3% down year on year, as to what bargains and in what sectors the experts would have us gamble is anyone’s guess. As to who the commentators are referring to as having magic money trees, with spare cash dangling off ready to ‘invest’, is also a mystery. Unless of course the majority are supposed to do a Hugh Hendry of Eclectica Asset Management and have a massive short on the Hang Seng using funky algorithms, or do a John Paulson and spot the crash of the subprime mortgage market.
The impact this correction will have on the pensions of the hard working masses, who our politicians constantly refer to as “doing the right thing”, is huge. The fact that the FTSE 100 is now circa 30% down on its recent decade high in 2007 has rendered most pension contributions (for the masses) worthless over the past decade. However, the biggest Ponzi schemes created, pensions, will never come in for criticism by the mainstream media, that is one Pandora’s box that will remain firmly shut given it strikes at the very core of our work ethic.
By now most accept that the jobless recovery was no recovery, unless success, in for example the USA, is to be measured by spending circa $1.3 trillion and managing to keep unemployment hovering at 9%. The incalculable levels of bailout and support in the USA, together with zirp, created the secular bear market rally we’ve experienced from 2010. How this can possibly be repeated in 2012, now central banks appear to be out of ideas and ammunition, is the massive question moving forward, assuming, and it’s a big assumption, that these crises don’t enter a newer more dangerous phase. If the markets do recover to the 2007 highs, or the recent Jan 2011 levels, then by now most accept that any ‘recovery’ may be bought on borrowed time equal to the size of the ‘fresh’ bailouts with more creative money.
Despite the positive news that the troika and the EU specifically appear to be finally dissolving their options down to a credible solution, the late market rally experienced in the USA, resulting in the SPX closing up 2.2% (having been down by a similar amount at one stage through the session), did not overlap to Asian markets, the Nikkei closed down 0.86% and the Hang Seng closed down 3.4%. The Hong Kong index is now down a massive 28.22% year on year. Let’s hope the Hong Kong residents and pensioners didn’t take the advice of their sages and try to pick the bottom of their main market, or perhaps they’re following Eclectica..
Italy’s credit rating was cut by Moody’s Investors Service for the first time in almost two decades yesterday evening on concerns that Italy’s chronically weak growth will make it difficult to reduce the region’s second-largest debt. Moody’s lowered Italy’s rating three levels to A2 from Aa2, with a negative outlook. The action comes after Standard & Poor’s downgraded Italy on Sept. 20 for the first time in five years. Italy was last cut by Moody’s in May 1993. However, what is more onerous is Moody’s suggestion they haven’t quite finished with their slash and burn.
All but the strongest euro-area sovereigns are likely to face sustained negative pressure on their ratings. Consequently, Moody’s expects fewer countries below AAA to retain high ratings, there are no immediate pressures that could cause downgrades for AAA-rated countries.
European indices have recovered this morning, the STOXX is currently up 2.1%, the UK FTSE is up 1.73%, the CAC is up 2.41% and the DAX up 1.94%. Brent crude is up $166 a barrel and gold is down $22 an ounce. The SPX daily equity future is currently down circa 0.5%. The euro has shed most of its small gains versus the dollar after the major sell off experienced over the past few days. It has continued to appreciate versus the Swissy as has sterling which is flat versus the dollar and yen. The Aussie dollar has risen versus the US dollar in overnight-early morning trade.
The major data releases that may affect sentiment on or around the New York session opening include the following;
12:00 US – MBA Mortgage Applications Sep
13:15 US – ADP Employment Change September
15:00 US – ISM Non-Manufacturing Index September
Of particular interest is the ADP employment figure which has been inaccurate and unreliable of late. A Bloomberg survey of analysts forecasts an increase of 70,000, compared with last month’s 91,000 rise. There may be a revised adjustment for August contained within the data release. The ISM index could affect sentiment, as with several readings a figure above 50 is considered positive. Analysts surveyed by Bloomberg indicated a median expectation of 52.8, compared with last month’s level of 53.3.