There are signs of a short-term rebound, but the big challenge is to sustain it
By LARRY WEE 26 November 2008
What a difference the past weekend’s rescue package for embattled US banking giant Citigroup has made all round. After registering awful losses over the past three weeks, stocks, currencies and commodities have all recovered sharply overnight on the news.
While this is a very welcome respite from all the doom and gloom we’ve been subject to day after day, the big challenge for the US authorities will be to keep Wall Street’s spirits up - or at least prevent US stocks from suffering more painful sessions of 5 to 6 per cent losses.
And if the AIG experience is anything to go by, Citi may well need more help. Short-term at least, we’re told that more forced selling threatens before the year is out if its share price fails to hold above US$5.
Last Friday, it hit a US$3.77 low but managed to finish at almost US$6 in Monday trading, with the help of the last weekend’s rescue package.
Indeed it would appear that nowadays, where Wall Street goes, everything else seems to follow.
Overnight, for example, the euro was able to power its way to almost US$1.30 despite news that a closely-watched German IFO business climate index had nosedived to a 15-year low - thanks to a massive recovery in global bourses which included a mighty 10.3 surge for Germany’s DAX index.
The good news, therefore, is that at least some kind of corrective short-term rally is being attempted in financial markets, but the bad news is that on the currency side at least, overnight gains were already being trimmed by the Asian close yesterday.
By one estimate from Merrill Lynch, global equity market capitalisation has now lost as much as US$35 trillion when compared to their recent cyclical peaks, a sum equivalent to four years of US consumer spending between the years of 2004 and 2007.
Along the way, we have seen inflation worries replaced by deflation fears, rate hikes by rate cuts and US Treasury yields fall to record lows on a combination of risk aversion and deflation worries. A closely-watched VIX volatility index raced away to danger levels of 70 again, even if it never actually got back up to October’s 80 highs. Commodity prices stumbled and tumbled sharply too, with oil prices falling below US$50 per barrel for the first time in more than three years.
Looking ahead, however, the period between mid-December and the end of January has historically been more a good time than bad for global bourses and, on the currency side, we have seen some technical signals in support of at least some kind of corrective rally.
For the euro, for example, we have a triangle breakout which offers the potential of an upside move towards US$1.3250, and this is complemented by a bearish downside break from a rising wedge for a broader-based US dollar index.
Elsewhere, we have seen a nice bounce from key round number support areas such as 120 yen, 60 yen and 50 yen for the euro, Australian dollar and New Zealand dollar, while gold and oil have elbowed their way back above US$800 per ounce and US$50 per barrel respectively.
The clincher would be further Wall Street gains in coming sessions. Specifically, we would love to see momentum build up for more corrective upside towards first northside objectives like 9,000, 920 and 1,600 for the Dow Industrial, S&P 500 and Nasdaq Composite indices respectively.
Such an outcome, in turn, would offer hope that we will see the US dollar recover towards 100 yen topside, but also correct back down towards October lows like S$1.45 and 83 on an indexed basis. Elsewhere, that might help currencies like the euro, Australian dollar and New Zealand dollar attempt a move back up towards US$1.3250, 70 US cents and 60 US cents respectively.
But such a pleasant respite for the holiday season may be wishful thinking if the Dow and S&P 500 indices fail to build a credible short-term base above 8,000 and 800 respectively.
It is that fragile at the moment folks, unfortunately. For example, we haven’t even started to talk about the threat of a nightmare failure for America’s Big Three automakers, or deepening recession fears worldwide.
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A Brief Reprieve or Something More?
There are signs of a short-term rebound, but the big challenge is to sustain it
By LARRY WEE
26 November 2008
What a difference the past weekend’s rescue package for embattled US banking giant Citigroup has made all round. After registering awful losses over the past three weeks, stocks, currencies and commodities have all recovered sharply overnight on the news.
While this is a very welcome respite from all the doom and gloom we’ve been subject to day after day, the big challenge for the US authorities will be to keep Wall Street’s spirits up - or at least prevent US stocks from suffering more painful sessions of 5 to 6 per cent losses.
And if the AIG experience is anything to go by, Citi may well need more help. Short-term at least, we’re told that more forced selling threatens before the year is out if its share price fails to hold above US$5.
Last Friday, it hit a US$3.77 low but managed to finish at almost US$6 in Monday trading, with the help of the last weekend’s rescue package.
Indeed it would appear that nowadays, where Wall Street goes, everything else seems to follow.
Overnight, for example, the euro was able to power its way to almost US$1.30 despite news that a closely-watched German IFO business climate index had nosedived to a 15-year low - thanks to a massive recovery in global bourses which included a mighty 10.3 surge for Germany’s DAX index.
The good news, therefore, is that at least some kind of corrective short-term rally is being attempted in financial markets, but the bad news is that on the currency side at least, overnight gains were already being trimmed by the Asian close yesterday.
By one estimate from Merrill Lynch, global equity market capitalisation has now lost as much as US$35 trillion when compared to their recent cyclical peaks, a sum equivalent to four years of US consumer spending between the years of 2004 and 2007.
Along the way, we have seen inflation worries replaced by deflation fears, rate hikes by rate cuts and US Treasury yields fall to record lows on a combination of risk aversion and deflation worries. A closely-watched VIX volatility index raced away to danger levels of 70 again, even if it never actually got back up to October’s 80 highs. Commodity prices stumbled and tumbled sharply too, with oil prices falling below US$50 per barrel for the first time in more than three years.
Looking ahead, however, the period between mid-December and the end of January has historically been more a good time than bad for global bourses and, on the currency side, we have seen some technical signals in support of at least some kind of corrective rally.
For the euro, for example, we have a triangle breakout which offers the potential of an upside move towards US$1.3250, and this is complemented by a bearish downside break from a rising wedge for a broader-based US dollar index.
Elsewhere, we have seen a nice bounce from key round number support areas such as 120 yen, 60 yen and 50 yen for the euro, Australian dollar and New Zealand dollar, while gold and oil have elbowed their way back above US$800 per ounce and US$50 per barrel respectively.
The clincher would be further Wall Street gains in coming sessions. Specifically, we would love to see momentum build up for more corrective upside towards first northside objectives like 9,000, 920 and 1,600 for the Dow Industrial, S&P 500 and Nasdaq Composite indices respectively.
Such an outcome, in turn, would offer hope that we will see the US dollar recover towards 100 yen topside, but also correct back down towards October lows like S$1.45 and 83 on an indexed basis. Elsewhere, that might help currencies like the euro, Australian dollar and New Zealand dollar attempt a move back up towards US$1.3250, 70 US cents and 60 US cents respectively.
But such a pleasant respite for the holiday season may be wishful thinking if the Dow and S&P 500 indices fail to build a credible short-term base above 8,000 and 800 respectively.
It is that fragile at the moment folks, unfortunately. For example, we haven’t even started to talk about the threat of a nightmare failure for America’s Big Three automakers, or deepening recession fears worldwide.
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