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EUROPEAN OUTLOOK & US/ASIAN SUMMARIES:
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March 23rd, 2009, 10:45 am | By One Financial | Published in Daily Fundamental | Comments on this postComments Off

Global stock markets are higher in response to news of the latest U.S. plan
to hive off toxic debt from banks. European bourses may start steady and
then advance later. Government debt may start little changed. The euro is
higher in response to advancing stocks, while oil is gaining and spot gold
is slightly lower.

STOCKS:
======

European stock exchanges are called to start mainly steady on Monday, after
news of the U.S. plans for a $1 trillion “bad bank.”

For Monday’s opening, One Financial is calling the FTSE up 3 at 3846, the
DAX up 1 at 4070 and the CAC off 8 at 2783.

Armando Guglielmetti, chief strategist at InvestNews.ch, said the broader
markets Monday should benefit from switches into stocks from money markets,
if the reactions to the new U.S. toxic debt plan are positive.

Germany’s Ifo business sentiment index for March, due Wednesday, is expected
to edge down a little while the more forward-looking expectations measure
will likely continue to improve.

“The headline index should edge down very slightly to reflect worsening
current conditions,” said BNP Paribas economists in a research note.
“However, expectations should continue their recent upward trend.”

The flash euro-zone purchasing managers survey for the manufacturing sector,
due Tuesday, is forecast to consolidate around its current weak level in
March, after recent steep declines, according to economists. For the
services sector the story is a little different.

“The drop in the February services index, which had previously held up
better than manufacturing, is set to become an ongoing theme in the coming
months,” HSBC economists said, adding “the sharp drop in the new business
component is a worrying development.”

Jean-Claude Trichet, the president of the European Central Bank, said Europe
doesn’t need to boost spending more to combat the global financial crisis,
throwing the bank’s weight behind Europe’s governments in their battle with
the U.S. over how to overcome the worst recession in a generation.

Wall Street futures are higher on Monday, after news leaked out over the
weekend about the latest U.S. financial rescue plan.

The final figure for fourth-quarter gross domestic product, due this week,
is expected to show a steeper drop in U.S. economic activity than previously
reported.

Data on February home sales also will be reported, while more retailers will
post quarterly results.

Bonuses paid to executives at American International Group Inc. (AIG) will
remain in the news as President Barack Obama answers questions in a
televised news conference and the Fed chairman and Treasury Secretary
testify before Congress.

Treasury Secretary Timothy Geithner said the only way to remove troubled
assets clogging banks’ balance sheets – which lie at the heart of the
financial crisis – is to work with the private sector, even at a time when
Wall Street moneymakers are being vilified by the public and politicians.

Geithner is due at 1245 GMT to unveil plans for a new investment fund to buy
up to $1 trillion in mortgage-related securities and other assets weighing
down bank balance sheets.

He told the Wall Street Journal the Public Private Investment Program
envisioned the creation of a series of public-private investments to soak up
troubled loans and securities. To encourage investors to buy those assets,
the government would offer lucrative subsidies and shoulder much of the
risk.

Asian shares are higher Monday, with financial stocks leading as investors
awaited U.S. Treasury Secretary Timothy Geithner’s plan to clear toxic
assets off U.S. banks’ books.

“With more details on the U.S. bad bank plan expected to come soon, it’s
hard for sellers to be aggressive,” said Yumi Nishimura, a market analyst
atBloomberg.

But some analysts worried that markets were setting themselves up for a
decline once the plan was detailed in full: “The outrage over the American
International Group bonuses has poisoned the water for public-private
partnerships, which makes us doubtful that Geithner’s plan will reduce
policy risk,” said ING.

Analysts at Calyon said “the reaction to the plan will be crucial in
determining whether markets can maintain the recent improvement in
sentiment. We suspect the rally will not last and risk aversion will pick up
again.”

FOREX:
======

The euro is rallying on Monday with prospects for a higher Wall Street
stocks opening firming up.
Westpac markets strategist Imre Speizer says main focus will be on the U.S.
administration’s plans to deal with toxic assets within banks. “The focus
will be on Geithner’s press conference. The euro is possibly moving up ahead
of this.” Traders expect downside for the euro to be contained, and more
gains possible if risk-aversion ebbs further.

BONDS:
=====

Euro-denominated government bonds are likely to trade lower on Monday.
Market speculation centers on further monetary easing by the European
Central Bank. The ECB’s refinancing rate currently stands at 1.5%. Analysts
at UniCredit expect the rate to ultimately fall to 1.0%, with a 25-basis
point rate cut likely in April.
The European Union is doing what is needed to help pull its economy out of a
deepening recession, European Commissioner for Economic and Monetary Affairs
Joaquin Almunia said Sunday.
The E.U. has rejected U.S. calls to expand its fiscal stimulus spending. The
bloc in December agreed to spend roughly EUR200 billion to aid its economy.
The U.S., by contrast, last month established a $787 billion stimulus plan.
In the U.K., the BOE’s quantitative easing policy lends support to gilts.
In data this week, U.K. consumer price inflation likely edged up on the
month in February while the year-on-year calculation is forecast to have
eased by more than in recent months.
“We expect U.K. CPI inflation to regain downward momentum in February,” said
BNP Paribas economists in a research note to clients. “Among the main
contributors to the slowdown will be utility prices. In February 2008
utility bills were raised by 10% to 15%. This was not repeated this
February,” BNP said, adding that over the coming months further cuts in
utility bills will “exert additional downward pressure on this component.”
U.S. Treasurys are lower on Monday as Asian stocks rallied. Investors also
awaited the impact of more supply this week.
On Monday, Japanese government bond futures were slightly lower with the
two-year yield up 0.5 basis point at 0.395%. “Japanese investors would like
to see if there’s anything new in the (Geithner) announcement and how U.S.
stock and bond markets will react,” said Mitsubishi UFJ Securities
strategist Naomi Hasegawa.

ENERGY:
=======

Oil prices are higher Monday, driven by optimism in the financial markets
ahead of an expected U.S. government announcement of a plan to sell toxic
assets, analysts said.

New York’s main futures contract, light sweet crude for delivery in May, was
up 30 cents to $52.37 a barrel. The Nymex contract for April delivery
expired on Friday. Brent North Sea crude for May delivery gained 45 cents to
$51.67.

“Right now, the crude oil market is primarily driven by the financial
markets,” said Victor Shum, an analyst with energy consultancy Purvin and
Gertz in Singapore. “What we are seeing in the crude oil market is a
financial rally.”

Koichi Murakami at Daiichi Shohin warned crude remained vulnerable to a
correction, given a recent rise in U.S. oil inventories, and as prices had
moved around 10% higher in the past week.

“Share prices, or anything else, could trigger selling. As prices have
breached the $50 line, there will be a correction.”

METALS:
======

Spot gold reversed early gains Monday in falling $3.60 from Friday’s New
York levels to $949.00 a troy ounce. Gold is likely to remain range-bound
with speculative flows waning as professional investors look at
opportunities across the commodities complex and in equities, said a Hong
Kong-based trader.
Three-month London Metal Exchange copper was up $106 from the London kerb,
at $4,060 a metric ton. A Hong Kong-based trader said the metal was being
supported by still-strong Chinese buying on arbitrage plus accumulation by
China’s State Reserve Bureau, but there is risk of a sudden reversal if
sharp recent price increases push the SRB to the sidelines.

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