Stock Markets Breaking Lower

With the land of the free, home of the broke, the United States of Insolvency closed yesterday; markets had to look elsewhere for inspiration. The now ex Japanese Finance Minister found it in a bottle with reports that he was drunk at the G7 meeting over the weekend (see video below). More seriously though for markets. The S&P 500 futures has broken support and is now trading just above the pivotal 800 level. A break below 800 could see heavy selling pressure.

Today’s Market Moving Stories

• Asian equities were pummelled overnight, with China H-shares and the Hong Kong HSI again leading declines. Oil stocks were sold off heavily following crude oil’s overnight drop, as both PetroChina and CNOONC were lower. Materials stocks are also lower on the fall in the Baltic Dry Index. In Korea, banking stocks were sold off as the Bank of Korea revealed that loan growth fell in 2008, particularly lending to corporates.
• A Moody’s report on Eastern European bank exposure suggested possible downgrades to Western Banks. Banks from Austria, Italy, France, Belgium, Germany and Sweden account for 84% of loans to the region. This has sparked a bout of risk aversion. The Euro looks poised to revisit the low 1.20’s level versus the Greenback.
• Seems post G7 non event has emboldened Chinese officials, one of whom is quoted as saying their currency (the Yuan) could WEAKEN versus the Dollar to 6.95. This is the polar opposite of what Geithner and Co. wants and could, as we’ve spoken about here before, start a trade war.
• GM (GM) is considering sale or even closure of four European plants in order to comply with the terms of the US Federal bailout. Attention will be on U.S. automobile stocks today, with GM and Chrysler scheduled to meet the U.S. Treasury to make their case for additional aid.
• The Financial crisis has become a TV show. It’s probably the best one of its kind thus far. Part one is here.
• AIB’s Polish subsidiary BZ WBK saw its share drop 8% as they were caught in the general Eastern European meltdown. Fitch Ratings said it may cut its debt rating to “negative” from “stable”. Note the Zloty is down 24% versus the Euro in just 3 months. Poland’s particular issue is the percentage of new mortgages that have been advanced in foreign currencies is around 50% (ouch).
• United Drug issued a very cautious IMS ahead of today’s AGM.
• A report from property website Daft.ie says that Irish rents declined by 12% in 2008.

A Proper Estimate Of Irish Taxpayers Liability
Davy’s Stockbrokers have a very good research note out this morning on the TRUE extent of liabilities of the Irish banking system. This counters some of the ludicrous scare mongering rubbish that is doing the rounds in even hitherto respectable papers. They put the true figure at 300% of GDP, which is one-third of the bogus number being quoted in the Times, Guardian, Dresdner Bank and numerous others who dare not let the facts or some basic research get in the way of tabloidisation and a bit of Irish bashing. Of this 300%, the Irish government has only guaranteed 237%, which compares to the Euro area average of 232%.

The reason for the massive and in some cases deliberate confusion is due to the presence of a large foreign banking sector in Ireland courtesy of the IFSC. The liabilities of these institutions have to be netted out to get the CORRECT number for the Irish governments (taxpayers) liability / guarantee.

Data And Earnings Today
If the market is right about UK RPI / inflation (09.30), the media buzz will be on the year on year rate turning negative for the first time since 1960 (thanks to the mechanical effects of mortgage and VAT rate cuts).

Germany’s important ZEW survey for February is out this morning at 10.00. The consensus is looking for a slight improvement in Economic Sentiment to -25 (versus previous -31), but a further deterioration in Current Situation to -82 (previous -77.1).

The U.S. calendar includes Empire Manufacturing Index (consensus -23.75), December Net Long Term TIC flows ($20bln) and the February NAHB Housing Market Index (8).

Earnings today from bellwether Dow component Wal-Mart (WMT) (expected EPS $0.99).

And Finally… Japan’s Minister Of Finance Drunk At G7 Meeting

Disclosures: None

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