My Diary 522 --- Why S&P called 500!

Trading Diary (March 02, 2009) --- Why S&P called 500!

My doubt over S&P500 holding to 741 was verified in two days and I think only a few people down the street now still argue that something hasn’t structurally changed. For the past month, I saw January S&P500 fall from 902 to 825 (8.5%) and February from 825 to 735 (10.9%). Technicals suggest we have plenty of room for more pain – SPX 707 and 660 are the next supports…. Soon I will know why S&P called “500”!

I think the key is still US consumption as the drop in Japanese exports to US at 53% in January and -6.2% US revised 4QGDP reminded me of the brutal economic reality. But this isn’t any different than most of the rest of the world – witness the list of disappointing 4QGDP reports from whatever India or Sweden or Japan. In fact, many see the global weakness as a return to the 1930’s and “beggar thy neighbor” devaluations…X-asset markets also saw very atmosphere of doubt and fears as both equities and bonds closed lower with UST 10Y yields were 2.40% to start 2009, 2.85% January 30 and are now 3.03%. Currency wise, JPY moved by moral suasion and weak economics, started 2009 with the JPY at 90 and close February at 97.50 – the USD gains 8.5%. EUR also enjoyed a move lower from 1.3850 to 1.2670 – also an 8.5% move. Perhaps the best measure of this doubt remains gold which moved from $875 to $945 (8%) ytd.

This all points to a tightening of US financial conditions – as the USD rallies, the yields steepened and the equity market hits new multi-year lows. So even in February, I look forward to a massive Stimulus Bill (create 3mn jobs, spur +2% GDP), even as more money flows into financials (Citibank deal) and even as I saw more global rate cuts and similar bank plans –--I am not optimistic!

Looking forward, the coming week looks like being macro-dominated yet again -- US ISM index, non-manufacturing ISM and NFP on Friday. The market is looking for 650K NFP with UNE rising to 7.9% from 7.6%. On the policy front, we get rate announcements from RBA, BoC, ECB and BoE. With USD index once again testing new high, it will be negative for Asian equity markets. Local market today, we have all eyes on HSBC --- very specific chat on HSBC potentially seeking capital will weigh on the stock…It’s looking ugly for Monday with Globex down another 1% and I guess today HSI down 400ppts….

Overseas Market Reviews

Global equities reached lower low with MXWO declined 1.7% on Friday. Regionally, equity in US lost 2.4%, declined 2.2% in EU and 3.4% in Japan. Elsewhere, UST yields climbed with 2yr closed at to 0.95% and 10yr to 3.02%. 1MWTI price of oil ended to $44.35/bbl. USD softens 0.94% vs. JPY to 97.6, ascended 0.6% against EUR to $1.2669.