FYI | Mar 24 2008
By Greg Peel
Wall Street posted a strong recovery on Thursday night but there is another session on Monday night before Australia gets to respond. Failing another down-day shocker in New York, Australia will be looking for signs confidence has returned in the US financial sector following last week’s extraordinary events and moves by the Fed to throw open its doors to the tired, the poor and the huddled masses. Australia’s bank sector has now found some stability following a 30% fall from its highs, but apart from lower PEs the sector has been aided by a collapse in commodity prices and its impact on the resources sector. Resources-to-banks is the switch du jour, just as it was in November.
And we all know what happened after November.
The question the world is now pondering is whether a rally in the broad markets from here means a bottom has been secured or whether the market is simply feinting north before heading south again, in typical bear-market-rally style. It will be a battle between those who say “look how low the PEs are” and those who say “wait till those Es start to be cut”. Yields of 7% look very attractive for the banks, for example, as do PEs of 9x, but if bad loans increase and capital is raised then those yields and PEs will quickly become myths. In 1991-2, bank PEs fell to 6x and yields exceeded bond rates which were then much higher.
Financial sector concerns are also emanating out of Europe. Bank of England governor Mervyn King has been forced to capitulate once more from his laissez faire stance and suggest that the BoE will have to match the Fed’s measures in rescue liquidity options. Meanwhile France’s largest bank – Bank Paribas – has announced it is not interested in buying slightly smaller rival Societe Generale. SocGen is still in dire straits after its little US$8bn rogue incident.
And word around town is watch out for UBS. A European Bear Stearns?
Australia releases the Conference Board leading index for January on Wednesday and February job vacancies on Thursday. Thursday also sees the release of the RBA’s half-yearly financial stability review. The December quarter national accounts are released on Friday, and that’s it.
Monday night in the US will produce the January home price index and February existing home – publications that Stephen King would likely be proud of. Tuesday brings March consumer confidence – a number which could be telling – along with the Richmond Fed activity index (not as heavy-weight as NY or Philly).
On Wednesday it’s February durable goods and new home sales, and on Thursday its the fourth quarter core PCE (personal consumption expenditure) inflation indicator and another shot at the fourth quater GDP, which registered 0.6% on preliminary. Friday brings the February core PCE along with income and spending, and the Michigan U consumer confidence measure for March.
On the subject of the UK, it will learn some home truths as well this week in the form of March house prices, and fourth quarter business investment, current account and GDP.
