Monday 16th February 2009

The G7 Meeting failed to come up with anything …..

…. positive or innovative to inspire the Markets. Indeed the FT seemed to sum it up nicely with their secondary headline, "G7 fiddling in Rome while the world burns". There was no mention in the post-Meeting release of Sterling weakness or Yen strength and just the well worn commitment for co-operation and communication. European markets have responded with disappointment this morning with softer equities and a firmer Dollar.

Bad news continued to dominate press inches over the weekend with masses of analysis of last week’s Lloyds Group announcement on the situation at their HBOS subsidiary. There have also been various articles highlighting likely problems that will potentially require a second wave of IMF bail outs plus a Telegraph piece suggesting that a failure to save the problematic Eastern European economies would lead to worldwide meltdown.

Focusing on the UK, the CBI have forecast that GDP will drop 3.3% this year, the greatest drop in the measure since 1949 and equivalent to a fall of 4.5% between the recent peak and the trough. Property prices continued to fall as reported in the Rightmove measure - down 9.1% year on year.

We continue to see lots of comment from ECB members, especially following the extremely weak German and Eurozone economic data last week. In large part it was dovish, with members indicating that conditions have likely deteriorated to such an extent that further rate cuts are justified. From Weber: the German economy has been hit harder by the downturn than many other countries, with the outlook for the coming months not good. He added that the ECB will use monetary leeway, and would be able to expand their balance sheet further if needed. Noyer made an important point (and especially relevant for the risks of European banks) that there is currently a real lack of financing for emerging market countries. Trichet also put in his 2 cents-worth by stating that the market should not exclude any non-standard ECB actions. All adds up to a significant cut at the ECB’s March meeting.

It is a Bank holiday today in both the US and Canada (President’s Day) and as such, the market will likely be quiet this afternoon. The US Congress finally approved the US$787 billion stimulus package on Friday night, although still receiving significant opposition from the Republicans. President Obama is expected to sign the bill later today. Also in the US over the weekend, several more small US banks failed. The FDIC has been appointed administrator for each, and has already found other banks to take over deposits. The banks are The Sherman County Bank of Nebraska, The Corn Belt Bank and Trust and The Pinnacle Bank of Beaverton - I have never heard of any of them but the significance of continued Bank failures will not be lost on Market players.

Today we are light on any scheduled external influences but there is talk doing the rounds of large Japanese repatriations on the back of sizeable Dollar coupons and redemptions coming due in the next couple of days.

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