Monday 23rd February 2009

Very few surprises in the Weekend Press….

… after all the speculation at the end of last week of the possible imminent State ownership of 2 large US Banks, there was nothing material happened. What we did see was a Wall St Journal report purportedly quoting a person or people in the know that suggest/imply etc that the Government will be taking as much as a 40% stake in Citibank by converting preference shares into ordinary shares. Equities and oil broadly higher on this with bonds and the Dollar both softer.

The Dollar was further undermined following an announcement from the ASEAN nations (China, Japan and Korea) that they planned to increase their joint Forex intervention reserve from USD 80 billion to USD 120 billion. The statement also suggested that restrictions on using the funds are likely to be eased which is undoubtedly a positive move for Asian currencies in general. The Yen itself has yet to exhibit further strengthening with the currency remaining soft on the cutting out of long currency positions amidst political upheaval and uncertainty following the resignation last week of the Finance Minister.

UK focus this week will be continuing developments in Gordon Brown’s Bank Rescue Plan. This appears to involve the Government hurling an additional £500billion of tax-payers money at the beleaguered Banking system via its controversial asset protection scheme and the launch of the Bank of England’s Quantitative Easing scheme. With both RBS and Lloyds expected to announce mega-losses later in the week and HSBC testing the waters over further capital raising measures, acceptance of the above assistance is imperative.

Supply will be the watch word for the US this week with 3 separate auctions scheduled over the next 5-days. A total of $ 94 billion is up for grabs in the 2-years, 5-years and 7-years, record amounts in each period. All are risky in terms of uptake with the 7-years the most vulnerable as this will be the 1st auction for this period since 1993.

Elsewhere, Japan saw SFCG, a specialist lender to Small & Medium sized companies, file for bankruptcy underlining the current dire condition of the Japanese economy. Less surprising was Abu Dhabi’s decision to ‘give’ Dubai a $ 10 billion bail-out to ease the country’s burgeoning debt mountain. As RBS put it so succinctly this morning, in the current crisis it does help having friends with REALLY deep pockets. A few European nations will be wishing/hoping that Germany will adopt the same attitude.

Today’s Data & Events:

We are very light on data today and heavy on Central Bankers speaking

During the day we have speeches from ECB members Trichet, Gonzales-Paramo and Nowotny, Fed members Lockhart and Fischer and Bank of Canada’s Jenkins.

Data we are down to,

13.30 gmt Canada retail sales (expected -1.5% after last -2.4%)

15.30 gmt US Dallas Fed manufacturing outlook (exp -50.0%)

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