Much of todays market gain can be attributed to the news from China. Earlier today, Shanghai composite index rose 6%, on the news that China was set to add 4Tr Yuan (about $580 Bn) stimulus package. the talk in the merket is that the new package could as well be 6Tr -8Tr Yuan. On top of that, China PMI beat expectations coming at 49 in Feb, a big imporvment from 45.3 in Jan.
Had it not been the weak job data from ADP, the market would have ended even higher. The ADP national employment report showed 697k jobs were lost in February, the worst performance so far in this recession indicating that economic conditions are still deteriorating more than a year into the downturn. Moreover, the prior month was revised down by 92k to -614k. Well, ADP data has always been a precursor to Non Farm Payroll data, and I would not be surprised if the number for Friday’s nonfarm payroll report standa at 700K, and an 8% unemployment rate.
Added to this, mid day the beige book report didnt sound any cheerful either. It shows more pain and more suffering ahed, just like the rest of the economic data we have seen lately. The report puts the likelihood of any near-term recovery as very low. Only two of twelve districts districts did not see significant deterioration. Significant recovery is not expected until late 2009 or into 2010. Consumer spending remains slow and there is an exceptionally sluggish auto market. Housing price decreases have not slowed with many markets continuing to see double-digit drops. Mortgage demand is depressed and consumer lending is down while unemployment is up and wage pressure is muted. and the list does not end here!!
Well, now Do I think todays rally is sustainable.. ?? Hell no!!
On the flip side, things are not as bad as they sound they are.
Though the unemployment data suggests that the rate is racing towards 10%, the worst in layoffs might be behind us. Outplacement firm Challenger, Gray & Christmas Inc. reported that the number of planned job cuts (Lay Offs) announced in February fell for the first time since December. Less layoffs - less future job losses.. however, we may have to endure more 600k-jobloss-months before it gets better.
Added Fed and Treasury are doing their best to stop the bleeding. Apart from the global stimulus efforts, I personally think TALF has the potential to atleast bring optimism/stability to the credit markets, if not, turn it around. The TALF is a loan facility consisting of $100bn equity from the Treasury and $900bn from the Fed. It extends secured lending to holders of newly issued consumer ABS and CMBS in order to get consumer lending again: demand from securitization accounted for 40% of loans extended to consumers. Lately the securitization market is DEAD.
GE has traded below 6, alevel not touched since 1990s. Markets are worried about the near term outlook for GE as GECC ( GE Capital) might have an influence on the earnings of GE Industrials.
Musing, FDIC’s fund fell from $34.6bn in the third quarter to $18.9bn in the fourth. And if Blair has any credibility to what she says, if the economy continues to be in this state over the next year, the FDIC fund might run to zero or even negative levels as bank failures would force the fund insolvent.. WOndering if our deposits which are supposedly be insured are INSURED! ??
Mood: "When will this end"
Song: Shattered - OAR
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