In an attempt to make itself electable Labour ditched clause 4, but the US government seem to be acting out the socialist fantasy, by slowly nationalising key parts of the economy, starting with the financial sector. In fact the Fed is only nationalising key parts of the financial sector, so while Lehman Brothers was considered OK to be allowed to fail, Bear Stearns, Frannie Mae, Freddie Mac, and now AIG were considered too important to the financial system to be allowed to go under. Last night in the US, stocks continued to fall especially as the traders' hopes for a rate cut were proved unfounded, with the Fed deciding to leave rates on hold in spite of US CPI easing slightly, however as rumours of a Fed rescue package for AIG started to spread markets picked up with the S&P 500 up 6.22%, and Dow Jones climbing 141.51 points higher. The actual package involves a $85bn loan, for a de facto 80% stake in the company.
Over this side of the Atlantic it is HBOS which is the focus of concerns. After the share price dropped dramatically yesterday, it had started to recover gradually this morning, but has again dropped drastically, by 40% after a 10% recovery. One possible reason for the collapse could be the rise in the LIBOR rate, the rate that banks lend to each other in the money markets, yesterday, which has spiked up again after easing off from last years credit crunch high, and yet again increased the costs of doing business for all the banks.
With all the volatility in the stock markets it is surprising how stable the Pound has been, as it holds around between 1.25-1.26 against the Euro, and in a range around 1.79 against the Dollar. The UK economy got some bad news from the CPI figures yesterday showing a further rise in inflation to 4.7%, with possibilities that next month could be even higher still. There was also some good news out for the Eurozone with the German ZEW index showed a surprise rise, with the drop in the price of oil, currently under $90/bbl, likely to be the cause of the survey's recovery.
The data out for the UK today reflects the grey weather, with unemployment claiming count showing a rise of 32k, against a consensus estimate of 22k, the biggest jump since Dec 1992. We've also had the minutes from the last MPC meeting which shows that once again Blanchflower stood alone in voting for a cut, indeed this time Blanchflower called for a 50bp cut. The minutes showed that the debate ranged from rate cuts to rate rises, but concluded that nothing much had changed from the last meeting; the minutes also stressed that the MPC would be focusing on the data at each meeting and are not predisposed towards any action.
The data has weakened Sterling slightly, sending it towards 1.78, and 1.25 against the Dollar and the Euro respectively.
Michael Corcoran - Assistant Manager |Treasury Solutions | nabCapital™