Global stocks markets continue under pressure amid signs that a slight
rebound could occur. European stock bourses are could recover modestly, with
government debt prices perhaps under light pressure. The euro and spot gold
are up slightly, with oil lower.

European share markets may rebound Tuesday, after markets fell sharply
Monday, with banks taking another pounding as HSBC Holdings became the
latest lender to ask shareholders for cash to shore up its balance sheet.

“The financial sector is on the back foot. The situation is still pretty
poor,” said Bernard McAlinden, strategist at NCB Stockbrokers in Ireland.
“We went into the fourth-quarter earnings season hoping that we were going
to see evidence of an ending to the financial sector’s woes but it was the
opposite. It was horrendous,” he added.

Credit Suisse equity strategists said: “We believe the euro should
ultimately trade below purchasing power parity given the tensions in the
euro area and the fact that Europe will potentially have a deeper recession
than the U.S. This, along with a weaker euro, leaves us underweight domestic
Europe.”

They are expecting profit for European companies to fall 34% in 2009, in
part due to the region’s exposure to Eastern Europe.

U.S. stock futures are higher Tuesday, after markets plunged Monday and the
major indexes closed at their lowest levels in more than a decade. More
anemic manufacturing data hurt Alcoa and more government intervention in the
financial sector was interpreted as an ominous sign for shareholders of
Citigroup.

General Electric, both a major lender and a major manufacturer, continued
its decline as the stock, once a perennial pick for safe portfolios, sold
off to levels associated with distressed “fallen angels.”

Manufacturing data indicated that a freeze in industrial activity continued
into February, while further government intervention in American
International Group raised fears of an incremental nationalization of the
U.S. financial sector.

“We’re in a bottoming process and it’s going to take a while,” said Anthony
Conroy, head equity trader at BNY ConvergEx.

“Two things need to happen for the market to bottom: financials need to be
healthy and the housing market needs to stabilize.”

Conroy said “healthy banks” were a prerequisite for a healthy financial
system and a healthy economy.

He expects a “soft nationalization,” where the government avoids complete
ownership of all major banks, yet helps wind down some of the weaker ones.

In Asia on Tuesday, shares were falling again with worries about the
continued bleeding at large financial companies around the globe sending
bank shares lower. Still, the declines less steep than those made on Wall
Street overnight, as regional bourses already dropped Monday.

“We could improve a bit because early selling pressure wasn’t overwhelming,”
said Tolhurst associate director Peter Morgan. “We factored in a lot of it
yesterday.”

Japanese stocks came off early lows on indications public funds were
supporting the market. Akira Ishida, head of the equities department of Chuo
Securities, said it was unclear how much public funds were actually buying,
if at all, but “the possibility of a stock market rebound on increased
public support is surely making some sellers hesitate.”

Interest also turned to recently beaten-down stocks in Australia. “It seems
like the market’s trawling some of the massive underperformers,” said Justin
Gallagher, head of Sydney sales trading at ABN AMRO. But he added “the
outlook just looks so terrible that it’s hard to see a meaningful rally.”

Merrill Lynch cut its HSBC target price by 41.2% to HK$42.91, and kept its
rating on the shares at underperform.

“Sentiment has turned more bearish following HSBC’s rights issue plan, which
means more selling pressure expected ahead,” said Jackson Wong at Tanrich.

Risk aversion Tuesday is receding as the euro starts to creep higher against
the dollar and yen as global stocks markets show early signs of recovery.

On Monday, the British pound slumped to its lowest level since late January
as traders anticipated another interest-rate cut and a shift to quantitative
easing from the Bank of England at its policy meeting Thursday.

European government bond prices may aim lower Tuesday, after markets rallied
Monday, buoyed by safe-haven demand as global equity markets tumbled.

Dealers doubt economic data will have much impact because equity markets
continue to steer debt market sentiment.

WestLB said trading could remain volatile in the run-up to Thursday’s ECB
interest rate decision, when a 50 basis-point cut to 1.5% is widely
expected.

In the U.K., attention turns to Tuesday’s supply, when the DMO taps GBP3.75
billion of the 3.25% 2011 UKT. Jason Simpson, market strategist at RBS, said
the auction should attract reasonable demand, as it comes two days before an
expected 50 basis-point interest rate cut by the BOE.

Treasury prices are lower Tuesday, after markets climbed Monday amid ongoing
fears about the health of the financial sector that sent investors
scrambling into the safest possible securities.

The gains were the greatest in the middle of the curve and came as stocks
sunk.

“Over the past couple of weeks, we’ve been going back and forth between
supply and the state of the economy,” said Michael Pond, Treasury and
inflation linked strategist at Barclays Capital in New York, “and weeks when
supply is not an issue we’ve tended to rally. It will be tough to change
direction significantly before we get payrolls.”

The government will release its February nonfarm payrolls report Friday and
economists are expecting another particularly dire report. Economists
surveyed by Dow Jones Newswires are predicting a drop of 652,000, and a jump
in the unemployment rate to 8.0% from the previous month’s 7.6%.

A central lesson of the banking crisis in Japan a decade ago is that
so-called bad assets must be quickly removed from banks’ balance sheets or
else management will fixate on the errors of the past to the exclusion of
making new loans, the president of the Federal Reserve Bank of Boston said
Monday.

In Japan on Tuesday, government bonds are getting help from the declines in
stocks and higher U.S. Treasurys earlier.

Traders in Japan were awaiting an auction of 10-year JGBs, which might limit
the market’s gains. “Both traders and investors would like to have an
auction at a reasonable level, not a very expensive level, so after a round
of buying back the market is likely to move in a narrow range until the
auction result is out,” said Mitsubishi UFJ Securities strategist Naomi
Hasegawa.

The Reserve Bank of Australia kept its benchmark cash rate unchanged at
3.25% Tuesday, saying that Australia is faring better than other nations and
that fiscal and monetary policy steps taken so far are sufficient to support
the domestic economy.

Oil prices are lower Tuesday as fresh turmoil rocked the global financial
sector, analysts said.

New York’s main futures contract, light sweet crude for April delivery, fell
35 cents to $39.80 a barrel.

Brent North Sea crude for April shed 60 cents to $41.61 per barrel.

The downward revision in U.S. GDP data and high jobless claims data “are at
the core of the economic woes and the ultimate drag on energy prices,” said
Phil Flynn, vice president of Alaron Trading Corporation.

“The financial situation, weak manufacturing, weak employment – recession
pressures the oil prices, and that’s the major concern,” said James
Williams, an economist at WTRG Economy.

Spot gold is $4.85 higher at $930.45 per troy ounce as margin call-related
selling eased, said Anderson Cheung, director of precious metals at Mitsui
Bussan in HK. “If gold doesn’t break the $890 level for a week or so, the
market is likely to regain strength.”

LME metals are edging higher after a relatively strong performance earlier
given the extent of the retreat in global equity markets. The show of
resilience lends support to view that base has been formed around current
levels.

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