The markets have oscillated around the prospects of the TARP bill in the US, and after white house meetings, and a weekend of negotiation, it looks like they finally have a bill to present to congress that looks like it might actually have a chance of going through. The bill has swollen from 4 pages, to over 100, with the extra words detailing the provisions that, those who originally opposed the bill, needed to be reassured that they weren't just handing over tax payers money. The provisions mean that congress has more control over the spending, and it also gives the government more leverage and security over the companies that are bailed out. The progress of the bill at the weekend has sent the Dollar higher, and pushed down Sterling to below 1.81, while the Euro sits around 1.4350 against the Dollar.
Every Monday seems to bring a fresh banking crisis. The restructuring of the financial industry has continued, with weekends seemingly the time when this kind of business gets done. Last week Washington Mutual was bought out by JP Morgan, representing the biggest failure of a US deposit taking bank in history, while in Europe Fortis are in trouble, getting bailed out by Governments, and the UK has had it's own problems with Bradford & Bingley following Northern Rock down the nationalisation path. Bradford & Bingley is being parcelled up, with the government, and by extension the tax payers, taking the risky mortgage assets, while a Spanish bank (Santander) buys the high street network and the valuable deposit taking business. The Pound continues rangebound against the Euro hovering either side of 1.26, as comments from an ECB member seemingly pointing to a rate cut next year failed to move the markets.
The UK data has been released and the news that mortgage approvals were at a record low, while mortgage lending is a 15 year low, and put some downward pressure on Sterling. The rest of the data for the week is likely to continue to push downwards, with tomorrow revision of GDP expected to show the UK economy on the cusp of a technical recession, and later in the week a manufacturing and service sector survey, expected to show more contraction. Elsewhere we have the ECB rate decision (the UK has to wait until the week after), and with the ECB members comments of rate cuts next year, it seems that this Thursday's decision will be a no change. As always on the first Friday of the month we end the week with US non-farm payrolls, a noisy, unreliable, but important measure for the markets, and with hurricane damage around the Gulf of Mexico, this months numbers could be even more volatile than usual.
Michael Corcoran | Treasury Solutions | nabCapital