Monday March 2nd

*Anyone reading the financial press over the weekend will have been wondering whether it was worth getting up this Monday morning to make their way into work for less pay, less prospects, harder-work and deterioration in their interest-earning disposable income sitting in the bank. Obama toned down his “financial Armageddon” rhetoric last week, but other pundits are still extremely worried about further economic explosions emanating a shock wave of ripples throughout the system, including a ticking-time bomb from Eastern Europe (there were plenty more column inches devoted to this). Further debates have been held on the possible outcome of a piecemeal nationalisation of the US’s banking system – democracy is holding back two of the largest and most crucial changes that should be implemented – a move away from mark-to-market valuation of assets on the financials’ balance sheets, and a full (maybe temporary) nationalisation of those banks most crucial to the system and in need of protection.
*US negotiations with Citi and the irked Middle Eastern shareholders (I must thank all those lovely hard-working individuals in Abu Dhabi especially for spending most of their weekend helping us out) must have been a touch-and-go affair. Fair to say that once high-flying and “savvy investor” HRH Waleed Bin Talal is NOT the happiest guy out there at present – his fortune has returned to 1990 levels - non-inflation adjusted – can you blame him? Serves as another example of an incredible loss-of-wealth in these difficult economic times.

*Another unhappy billionaire out there must be Buffet - his magic touch is facing a couple of sobering issues at present, as his investment vehicle posts a 96% fall in net income for Q4- worst performance since Buffet took control but let’s be honest – we all know he will be back in an extremely strong (and profitable) position on the back of his huge cash-pile and unparalleled negotiating power.

*Another week another multi-billion $ capital-raising rights issue – HSBC this time (Citi co-lead manager on this deal). Following the less-than-fun antics of UK’s financial institutions last week and US govt’s conversion of Citi preferred shares in what was once the world’s largest bank, the $18bn HSBC is looking to raise through a rights issue today (stock is suspended from trading in Hong Kong, but down 12% in London so far) causes a few eye-lashes to flutter. A reflection of the power of negative public sentiment and mass media hysteria that HSBC even feels the need to reassure investors that its capital tier ratio is adequate and capital-base is sufficient to weather any further storms – most likely we shall see other US financials become more conservative like HSBC in the future – steady revenue stream without the blips and bump – but where’s the fun in that?

*In another strong showing for Doha, the W hotel chain has opened its first hotel in the region today. Interesting to note that this extremely prestigious and fashionable hotel chain did not consider Dubai for its first foray into the GCC despite Dubai’s “hotel hub history” – another sign of the shifting fortunes of the Gulf states towards Doha? Doha’s stock market has continued to under-perform though (now -36% YTD) in a baffling move against all the positive indicators for the country and a pervasive signal of risk aversion.

*Markets are all currently in deep negative territory as we kick the week off in depressing fashion – Asia saw significant falls across Japan, HK and China (-3.8%, -3.8%, 1.5%) with investors all reacting to a continued stream of bad news out of the US and Europe (no real Asia specific news though). Europe is reacting just as badly, with the HSBC news serving as an excuse for some further selling-off in the financials – all the majors down a minimum of -2.5%. What happens in these uncertain times? Yep – Gold rises a little – currently trading up 1.4%. Oil is slightly off though and back below $45/brl at $43.46. Currencies are surprisingly stable at present, possibly as investors gear-up for the next concerted push in one direction or the other. US Futures early on indicate a very bad start to the new month of March, with DJIA -108pts and S&P500 -14.5pts. Let’s hope this eases up a little before the open and after the AIG announcement (world’s largest insurance company will be broken into 3 distinct divisions and receive up to another $30bn in new capital).

*Economic Indicators to look out for this week: A number of US indicators that may shape market moves early on: Personal Income and Personal Spending later today (-0.2% and +0.4% cons respectively), PCE Deflator (YoY, +0.5%), PCE Core (YoY, 1.6%) Mortgage Delinquencies, ISM Manufacturing, ISM Prices Paid (Feb 33.5), Construction Spending (Jan -1.5%), Construction Spending (Jan -1.5%) and later in the week: ABC Consumer Confidence, Total Vehicle Sales, AND on Friday the most-watched indicator of them all – Non-Farm Payroll Figures (current consensus there is -650k) Unemployment Rate (7.9%).
*Europe will see the Bank of England most likely reduce official interest rates to 0.5% (another 50bps from 1%) on Thursday – most agree though that this is full-priced in and will not make much material difference to lending patterns or stimulate the economy in any measurable way.