Morning Commentary: Capital Spreads, 9th January 2009
publication date: Jan 9, 2009
The German government finally succumbed to the pressure of the credit crunch and banking crisis yesterday by plunging €10bn into Commerzbank. The bank is a major constituent of the German economy and lends to millions of their customers both private and institutional and this indicates once again just how reliable the whole of the economy, from start to finish, is on banks. Whilst such a bailout secures many of the bank’s jobs (much to the grip of others who blame them solely for this situation) and assists in kick starting the free flow of money in an attempt to prevent a serious recession, it is something that German and European tax payers will have to foot the bill for in the years to come. Like our very own RBS, Commerzbank is in the middle of buying Dresdner for a mere €9.8bn all of which is another huge and bitter pill to swallow considering Commerzbank’s market capitalisation is only €3.8bn and whilst this recent action should hope to make the deal go through it’ll just make the recovery that much harder and longer. Other European banks have been warning of their losses as the value of many of their debt assets continue to tumble. Credit Suisse and BNP Paribas are two of the huge European banks that have also suffered in the face of this crisis.
So not only is the European banking sector suffering just as badly as our own, but the cracks are really beginning to show in other areas. Consumer, economic and industrial confidence all plummeted to new lows yesterday and in Spain the number of unemployed reached three million for the first time ever. Spain’s economy in the last 15 years has been built on property and the activity over the last year has taken its toll. Many of the developments now stand half built and most of them will have to be knocked down. The situation isn’t going to get any better and whilst their politicians say their unemployment hasn’t reached the bottom, but won’t hit four millions they are more optimistic than I am.
With inflation dropping like a stone and such dire economic data from the Euro zone the pressure is ever building for the ECB to take similar action to that of the BOE. Their rates currently stand at 2.5% and are expected to be slashed by at least 0.5%.
Today’s highlight will be the US employment figures out at 13h30 London time. Non-farm payrolls are expected to decline by 500k as opposed to last month’s 533k fall, but the real figure is anyone’s guess as the estimates range from a fall of 400k to 750k. The unemployment rate is due to jump to a fifteen year high from 6.7% to 7.0% a figure that will prove 2008 to be the worst year for NFP losses since 1945.
Before then we have UK PPI data and industrial production at 09h30, with the significant falls in inflation being shown as monthly PPI should decline -2.0% meaning the yearly figure should drop from 7.5% to 3.0%.
This morning the FTSE is a little undecided, as were US and Asian markets overnight and we’re hovering around the 4500 level. There is still a huge degree of nervousness from the way indices have commenced 2009 as they are near where they started the year. Of course it’s early days. However, the early attempts to push higher have been reversed which isn’t a great sign. Investors will be hoping for some glimmer of hope from today’s NFP number so things will probably remain quiet until then.
