First, a moment to focus on the terrible natural event in one of the world’s poorest countries that has brought a human outpouring of support and empathy for Haiti over the last 48 hours. At its time of need, the richer countries that both immediately neighbour and historically relate to it have made heart-warming efforts to support the aid effort. The disaster striking home when receiving emails from colleagues that were either residing there or visiting – all are hoping the suffering is limited and feel for the unimaginably enormous losses incurred. Bad things seem to happen to the least deserving.
Salty markets…
A little blip and we’re off again. Alcoa missing its earnings alongside China’s surprise reserve requirement ratio rate hike on its banks caused global markets to take a small step back (China actually fell 2.5% yesterday, dragging most of the surrounding Asian markets down with it, Europe stuttered as it shed about 50bps across its majors) but as with most things that require a slight retreat before re-advancing, they have since initiated a move forwards, with nice green screens all across Asia and Europe this morning (Japan +1.6%, CSI +1.8%, Europe roughly 50bps back-up across the majors and US futures indicating a decent opening, S&P +0.7pts, Dow +7) Intel’s strong numbers, emerging market currencies and signs of economic strength in Australia have all tallied to push markets higher today. The troubles Japan Airlines has been facing (heart-breaking to witness once awe-inspiring Japanese firms descending into chaos and dreaded near-bankruptcy) spooked a few investors around the airline industry but quickly resolved when the isolated nature of JAL’s problems became clear. The world really has changed when the Japanese are being helped by international money.
We haven’t mentioned the price of Oil in a few weeks, missing a high of $84/brl in that time and still trading higher than $80/brl today. The shift in currencies has obviously altered investor sentiment towards both Oil and Gold (trading at $1,137/oz today, +33bps), with recent weakening across the USD in particular (Cable dipped to 1.59 last week, back at just-shy of 1.63 now) adjusting 2010 hedging policies and the spike in Oil possibly catching some off-guard as it steadily rose through the latter half of December and then shot-up in the first few days of the New Year - when surely many were still either too fat from excessive Christmas Turkey meals to direct enough blood-low to the brain, or recovering from days of partying in between the eating and New Year’s Eve.
Either way, a rise in US consumption levels coupled with the long-lasting and excruciatingly cold winter-snap holding much of northern Europe hostage, not to mention bringing the ill-prepared UK to a standstill, has maintained a heavy demand on natural resources beyond seasonal norms (Qatar must be loving all the extra need for Gas – how nice that they recently opened the Gas terminal in southern England providing near to 40% of the country’s demand). What’s up with the UK collapsing every which way when challenged with slightly adverse weather anyway? They complain of water shortages when it’s too hot in summer and run-out of gritting salt when it’s too cold – run out of water and salt? A country that is an island runs out of water and salt? Someone please explain…
China raises rates..and the stakes
China kicked off the New Year (the Western one at least – theirs is in a month or so) in much the same form – stealing the limelight by surprising markets (but rather than stimulating share prices upwards with huge amounts of spending, they caused investors to pull-back a little) with the hike in the official reserve requirement ratio, essentially forcing banks to reign back lending in a precursor to what many believe will be an actual hike in the base-rate to ensure an over-heated economy does not develop into a scalding bubble.
Whilst China affected markets and global sentiment with a necessary and quite prudent economic manoeuvre, it also presented a few problems for one of the world’s largest tech-firms when Google insinuated that its systems in China had been hacked into by the government and then threatened to pull-out of the country (where it is the number two player to the local domestic provider - Baidu) unless censorship of the net was scaled-back. Whilst Google’s position may be admirable in the face of freedom of expression and other liberal blah blah tendencies (not that it isn’t worthy of being taken seriously but, you know, the usual stuff) one can’t help but feel Google may have played this slightly wrong. After all, it is a foreign company operating in what is a centrally-controlled state that takes its own position more seriously than anything else, including business and international reputation.
Google-out…
China probably also won’t shed a tear if Google does pull-out, leaving Baidu to reign supreme across the net – providing an undoubtedly more pliable party to deal with/push around. First to flee China was Yahoo, then E-Bay and now maybe Google - certainly not an advertisement for ease-of-access and openness in the world’s largest web-market. The not-without-severe-turbulence fast-flying rise of China continues at the outset of the new decade, a path many foresaw would be littered with obstacles such as these. The latest internet-based machinations may resemble an own goal if much-needed foreign companies, importing essential expertise and know-how, conclude the prospect a 1bn consumers is not worth the Politbureau induced headache (notice the French choice of spelling there, softer than -buro).
Why Mr President!?
Elsewhere, one institution that certainly had a decent 2009 was the Fed. They reported a $47bn profit from their bail-out investments and if that was not enough Obama has announced a possible fee on some of the larger banks to help recoup even more money for the common taxpayer – all in the aid of reducing the rather large budget deficit ($1trn est for 2010) politicians are beginning to round-up on as the administration’s greatest burden. President Obama - whom I still like, definitely more than super-bonus-tax Gordon Brown – wants to raise $120bn to plug a couple of holes in the Treasury. It would take much more to rectify the difficult debt position the US finds itself in, but every little helps I guess. Could we please ensure around $119.99bn of those fees don’t come from Citi?
Great timing Mr President! Just as the US banks are preparing to reward their oh-so-hard-working and deserving employees with extremely large and (only fair no?) wads of cash for services rendered (or jobs destroyed – you pick) the government spoils all the fun-to-be-had in February by reminding the voting public just how evil we – uhhh..I mean the investment banking community of course - all are. Coupled with the UK’s adamant wish to “make the financial community pay for the recession” or otherwise known as the desire to “kick-all-the-bankers-out-of-London” policy, the investment banking community is not going to find it easy to get paid without feeling a (tiny) bit guilty.
Heading off to China to start a web-censorship firm isn’t sounding too unattractive about now.
Best Rgds,
Hani
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