Morning Run

Key News

 

*UK Deficit Largest Since WWII; Unemployment Reaches 12-Year High (Bloomberg)

* Deflation bites UK as RPI goes negative (FT)

*Soaring US Budget Deficit Will Mean Billions in Bond Sales (Bloomberg)

*China’s Economy May Expand Faster Than Expected on Stimulus (Bloomberg)

 

The Event Agenda

The Morning Run-Down

As the New York session begins the markets are reflecting more of the risk aversion trend from Monday.   The British pound is getting hit as officials warn on prospects for the economy and announce that the UK will sell a record amount of debt this year.

 

The IMF released its Global Financial Stability Report yesterday and is now projecting total losses from the global financial crisis to reach $4.1 trillion.  That’s 4 times the amount the same report concluded last year this time.  The report points to largest exposure for potential write-offs as Europe (ex UK).  This should continue to weigh on the euro as market participants digest this information.      

 

Geithner’s comments before the TARP Oversight Committee gave a bid to US stocks yesterday which turned the tide across risky assets—for the day.  His commentary suggested many challenges, the complexity of the problems and the unproven outcomes of the judgments that have been made, yet he indicated that the stress tests would show many banks sufficiently capitalized.  In a market looking for good news, that was enough.  Investor optimism continues to be elevated.  Overnight, the Chinese Central Bank said growth is on track to hit 8% for 2009…and Goldman Sachs affirmed with an upgrade on their projection to 8.3%.  Goldman expects exports to improve.  An optimistic bet on the Chinese stimulus package and the global economy.

 

In the FX markets, this biggest movers Monday were the biggest movers yesterday—giving back Monday’s move.   Interestingly, as the Australian dollar was rising on Tuesday so was the credit default swap market on Australia’s sovereign debt risk.  The market was pricing in 18% more risk in the Australian economy at Tuesday’s close than they were on Monday. 

 

There was a four percent range in the Aussie/dollar over the past two days, and the retracement yesterday presented a second chance to sell the Aussie.

 

 

 

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