Wednesday 18th February 2009

Is this the Beginning of the End?

Last night Mr Obama signed the long awaited $787bn stimulus plan, stating that he saw the plan as "the beginning of the end". The White House has said that it will take about a month for the money to start flowing, many critics think they have acted to late to have an effect in 2009. The package includes working class tax cuts, infrastructure spending, help for the poor and unemployed and investment in alternative energy.

Stateside, yesterday we saw the ailing US automobile industry ask for more state aid. GM to the tune of a further $16.6 bn in new loans (which would more than double its aid to date) stating it needs the cash next month to survive as it sheds 47,000 more jobs worldwide. Chrysler also asked for a further $5bn from the government and will shed 3,000 more positions.

The automakers met a deadline yesterday reporting progress thus far with the $17.4bn in loans that were granted but now they must show the US by 31 March that they can become profitable in order to keep the funds.

Small signs of encouragement came from Europe’s powerhouse yesterday as French and German banks posted better than expected results and the German ZEW survey of economic sentiment was better than predictions coming out at -5.8 for February (versus expectations of -26.5). SocGen, France’s third largest bank, announced that they had a profit in Q4 with net income of EUR 87m, compared with an EUR 3.35bn deficit a year earlier (courtesy of Jerome Kerviel’s rouge trading). Germany’s second largest bank, Comerzbank, posted a net loss of EUR 809m which was better than the expected EUR 851m loss.

This caused EUR to briefly rise from a 10 week low against USD of 1.2560 but EUR has sold off again this morning to current levels just above the 1.2560 low.

In the UK we saw inflation ease in January to a 9 month low. Headline CPI fell -0.7 on the month and rose 3% on the year (2.7% yoy expected). Despite being at the top of the Government’s target range this is the smallest rise since March 2008. This better than expected result would have been fuelled by December discounts.

The UK government flexed its weight with RBS yesterday squeezing the bonus pool from $2.5bn last year to £175m for the lucky bankers with guaranteed bonuses and £165 to 80,000 other front line staff.

All eyes today will be on the release of the Bank of England minutes, out at 9.30am. They voting split, in particular, will be a focus.

GBP has sold off this morning off the back of an article around a possible Moodys downgrade of the UK.

Other news revealed that Madoff mayhave a cell mate; as the twenty20 billionaire, Mr Allen Stanford, has allegedly been running a "massive ongoing fraud" with $8bn of client funds unaccounted for.

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