Key News
*U.S. Housing Starts Drop on Apartments, Condominiums (Bloomberg)
* IMF’s Lipsky Warns Against Complacency on Economy (Bloomberg)
*Despite Oil Reserves, Norway Slips Into Recession (NY Times)
*Goldman, Morgan Stanley ask to repay TARP funding (MarketWatch)
The Event Agenda
The Morning Run-Down
After Friday’s break down in stocks and in the risk trade, this week, it’s more optimism. Goldman, JP Morgan and Morgan Stanley are applying to pay back the TARP. The market is taking that as a sign that the banking system is recovering. Alternatively, more likely, these banks just want the government out of their business. When the TARP was a no strings attached free-for-all cash injection everyone was lining up to get in. When the restrictions were later threatened, the entities on the margin wanted their privacy back (read pay packages and business trips). Of course only after the government stepped in a effectively made good on their counterparty hedges with AIG.
Nonetheless, today stocks have been higher, Treasuries lower, commodities higher and the dollar lower. The risk relationships continue to hold across financial markets. It’s a directional trade either for risk or for risk aversion. And right now, the risk taking camp is continuing the climb.
However, as long as stocks remain contained by significant technical resistance, the relative day to day strength in the risk-currencies like the Aussie should be less important unless confirmed by stocks.
The data in focus for the remainder of the weak should be negative—which should not bode well for the risk taking environment. Tonight, Japan reports preliminary GDP for the first quarter. The economy is expected to be contracting at an annualized rate of 16.1%, more than the 12.1% intial estimate. Bank of England and the FOMC both report minutes from their last meetings tomorrow. Then, thursday we get US leading economic indicators which remain negative and in decline the last three months. And Friday, we get another reading on UK GDP for the first quarter, expected to confirm the worst quarterly decline in output since 1979.
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