Friday appeared to be a roller coaster rise as sentiment rose and fell according to the various news items that hit the headlines.
The bad news began with the story that Anglo Irish Bank is being nationalized. This was later followed by optimism of an announcement to bail out Bank of America and the release of the second tranche of TARP funds. However, Bank of America and Citigroup results sent sentiment tumbling again after large than expected losses were announced. There was a huge sell of shares in both Barclays (-25%) and RBS (-13%) aided by rumors of further write downs and the lifting of the short selling ban.
The beginning of the week in Asia saw a wave of optimism hit the markets despite today’s Martin Luther King Day holiday in US. How long this will last and, more to the point, if it is at all justified, remains to be seen but, nevertheless, risk aversion has reduced a little. This despite some undercurrents of concern in the press over the weekend with one report saying that it is possible Ireland could withdraw from the Euro while other reports predict a huge write down from RBS.
Swiss retail sales fell 1.4% on the year in real terms in November, versus rising 2.9% on the year in October. Swiss retail sales are notoriously volatile and the 3m y/y trend rate slipped to 2.6% from 3.1%. When adjusted for the number of shopping days, sales were rose 2.5% y/y however, after a 2.9% increase in October but the 3m y/y rate also slipped to 2.6%, versus 3.1% in October. Overall, data suggest that the retail sector, although having held up relatively well this year, is displaying a downward trend. We are likely to see weaker retail sales figures ahead as consumer demand falters on the back of the credit crunch and weaker confidence.
Although week ahead should be relatively tame in terms of scheduled economic event risk, recent experience has shown that the US Dollar may nonetheless remain volatile on shifts in financial sentiment. Today’s focus will be on central bank speakers with President Trichet giving headlines at lunch debate in Paris (10:50 GMT) and Eurogroup of Euro area finance ministers meeting in Brussels (16:00 GMT)
Obama’s inauguration in the US tomorrow will bring enormous amount of press and massive amount of people in Washington. Main focus will be on US economy credit needs and solutions provided accordingly.