The readjustment into what will be considered normal operating conditions for the markets continues. Stock markets despite a brief wobble have bounced back and key indices remain at 18 month highs, and Greece aside, developed market government bond markets seem to remain relatively range bound in spite of the imminent need for a deluge of issuance. What seems to be clear is that whereas previously there was expected to be a degree of correlation in Globalised market movements, there is now much more scope for regional and indeed further micro driven anomalies.

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The last year proved what the concerted efforts of a group of central bankers and governments can achieve.  From the edge of financial meltdown the bounce back has been indeed remarkable.  Asset markets around the world put in very impressive rallies including stocks, credit markets, housing.  You name it, 2009 saw it rally.

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The themes in the news really remain focused on the state of the economy with the key GDP statistic released on Friday unexpectedly bad. Company specific news of any major significance remains secondary.

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The stories in the press over the last week and weekend remain balanced for the most part with some positive stories, however there does seem to be an increasing tone of realism/pessimism as there are an ever growing number of mixed signals coming through.

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There is a phrase recurring amongst senior government officials: ‘don’t waste a good crisis’. The phrase refers to the fact that, in public services as in business, difficult times can provide a useful opportunity to reflect on the fundamentals; to take some difficult decisions that the good times made easy to postpone. Read the rest of this entry »

An increasing number of politicians and policy makers are talking about the worst of this crisis being over, and there being evidence of the beginnings of recovery.
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After more than 10 years  spearheading the US and UK economies, the unprecedented events of last year  - which saw a whole host of financial behemoths bailed out by their respective governments - are still playing out, and the whole industry is undergoing a huge transformational change.
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The devil is always in the detail … or in this case lack of it.
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Onwards and downwards it would seem.

After the relatively calm start to the year, this last week has seen a return to the sombre mood that we ended last year on.  Stock markets have been hammered again, unsurprisingly led lower by financial stocks, with the Dow giving up 1,000 points on the week, and the FTSE just under 300.  Meanwhile credit risk resumed its widening trend, with bank and sovereign risk dominating the move as yet another bank baiout has been required in the UK, this time the headline number being hundreds of billions of taxpayer’s money.

The economic data calendar has been relatively quiet, and if anything th UK numbers out this morning were not quite as bad as expected.  However the negative mood continues to permeate, and with news stories heralding the nationalisation of UK banks with RBS on the brink of being the guinea pig (already 70% government owned), Lloyds TSB hot on its heels (43%), now Barclays has been heavily sold in anticipation it will go the same way.  Out of the US BlackRock reported the loss of $80bn in Q4 of 2008 alone, and there seems little reason to expect anything positive to come out of the sector as a whole.

Overall we think markets will remain heavy with any pop being seen as an opportunity to sell.  Volumes remain light however as the ongoing lack risk appetite does not seem about to change, and until such time as the news flow can maintain a sustained spell of positivity there seems little reason to step in and buy.  That said, we do think that this is the time to begin to scan the market for companies that have a good financial balance and look able to trade through the storm, as Q2 or Q3 could mark the lows, and bargain hunters could appear.

With the threat of the imminent collapse of the world’s financial system no longer hanging above us there has been some return to normality.  Admittedly we are still in the first week back after holiday season and volumes are very much at the lower end, but we do seem to have the beginnings of orderly market conditions.

Whilst there is still clearly some navigating to be done by the policy makers, especially in the UK following the closure of some retailers late on in December, with rates in the developed world expected to head close to zero we are finally seeing the hoped for knock-on effect that money markets are beginning to free up.

This aggressive global monetary policy approach is also beginning to impact the corporate world with there now being a more sensible approach to valuations, as opposed to the panic we saw at the height of the de-leveraging during Q4 af last year.  The indeces tracking default risk of corporate bonds are tightening in investment grade names, whereas the crossover index tracking the higher risk end continues to widen reflecting the concern that these types of companies may well struggle to roll over their debt this year.

In equities the year has begun unremarkably with the FTSE still above 4,500 and the Dow above 9,000.  Until the first round of earnings numbers we would expect volaility to remain low, however the market still clearly remains vulnerable to any shock news.

Overall for January, after last year’s energy sapping volatility, we expect the markets to be reasonably quiet with risk appetite remaining low as participants just try and ease themselves back in without losing money.