Thanksgiving Day Market Hangover

The lack of US traders at their desks yesterday didn’t stop the markets from selling off big time. The market was in a strong “pull-back mode” after the Dubai story broke. The state-owned investment company Dubai World unexpectedly announced it would have to postpone payment of tens billions of dollars-worth of debt for six months. This was tantamount to a default and the bulls went running for cover. The FTSE 100 fell 3.2%, the most in eight months while oil pared nearly 5% off its price. Instead of waiting to see what European banks were exposed to Dubai World, traders decided that the safest option was to shoot first and ask questions later. Barclays (BCS), HSBC (HBC) and Royal Bank of Scotland were all down more than 6.5%. In a case of plucking a name out of a hat, JPMorgan (JPM) said that RBS (RBS) was Dubai World’s biggest loan arranger to the tune of about $2.3B.

The US markets have risen a little since they opened for trading. They have a long way to go before they have recovered all of the losses that yesterday inflicted though. DuPont, Cisco and United Tech are doing the best on the Dow so far.

Today’s Market Moving Stories

• Euro area sentiment rose to a stronger than expected 88.8 (consensus 88.1). The pickup in confidence was strongest among industry, while consumer sentiment rose less sharply as respondents expressed fears over losing their jobs.
• Japanese consumer prices declined in October for the eighth straight month, underscoring deflationary pressure. Core consumer prices fell 0.4% MoM.
• Electronics retailer Best Buy said its Black Friday traffic is up so far as consumers purchased smart phones, flat panel televisions, laptops, netbooks and digital cameras. “We are pleased with the traffic and pleased that consumers are out,” Chief Executive Brian Dunn said. Black Friday is the single busiest shopping day of the crucial US holiday season. The annual ritual of American consumerism is being monitored closely for signs the US shopper is back.
• The ECB president and other senior European officials will fly to China this weekend to try and convince government officials there to let its currency rise against the euro, although a similar trip two years ago accomplished little. A senior China official said China will keep the yuan “basically stable around reasonable, balanced levels,” suggesting China’s unlikely to buy into a faster yuan appreciation.
• European Commission President Barroso named Finland’s Olli Rehn as the EU’s economic and monetary affairs chief, a role in which he will oversee efforts to revive Europe’s economy. I did a quick background check on Olli but couldn’t find anything too interesting. He takes over from Spaniard Joaquin Almunia.
• The Bank of England is sticking with its view that the worst is over for the UK and the economy will return to growth in the final quarter of this year. They’re looking for about 0.2% - 0.4% of growth in the quarter. If they don’t get a move on soon, France and Germany will be at their next recession in the boom and bust cycle by the time the UK gets out of this one.
• UBS believes that authorities will not have taken the decision to restructure Dubai World lightly and that there are three potential explanations for the decision. Firstly, Abu Dhabi’s support for Dubai might be less generous than assumed. “Perhaps Abu Dhabi has forced Dubai to tackle the problem of excessive corporate debt before extending more financial support”. A second possibility is that corporate-sector problems might be more severe than assumed. Thirdly, Dubai’s debt might be higher than the generally assumed $80bn - $90bn due to potential off-balance sheet liabilities.
• Ireland’s long-awaited National Asset Management Agency will finally begin operations within a fortnight and could start legal action against loan defaulters as early as next year, NAMA’s acting and future chief executive Brendan McDonagh said. Mr McDonagh reiterated that NAMA will at least break even over its lifetime if the economy begins to grow here. More like, it’ll break even if McDonagh manages to re-engineer a property bubble!
• Irish Taoiseach Brian Cowen has criticised what he called the “overwhelming negativity” about the economy, saying that it is not in our national interest. Well here are some hard facts and come up with your own view on whether they are positive or negative - €23bn exchequer deficit so far this year; 12.5% unemployment rate; new car sales -62% YoY; new home prices -40% from peak; Central Bank 2009 GDP growth forecast of -8.3%. Pretty overwhelmingly negative if you ask me. But some people are negative just to stir up controversy and get publicity and I absolutely don’t agree with that.

What’s Going On In Norway
I do like an auld trade on the Norwegian Krone which requires me to know a tiny bit about how the Nordic country’s economy is going. Well, Norway’s employment picture remains the brightest in Europe as September unemployment remained unchanged at a mere 3.1% (Obama, Brown or Cowen would love a rate like that!) This has been an important driver for the economy shaking the recession bug in the 2nd quarter. But the Krone has a huge correlation to oil, so any rise in the oil price will also give boost to the currency. This has worked wonders in the past eight months. But not yesterday. Oil’s slide lead to USD/NOK rising 1.95% as the Krone was sold off. Keep an eye on USD/NOK though. The trend is still undoubtedly downwards so any market recovery will lead to a further USD/NOK slide.

Company News

• Carphone Warehouse raised its full-year earnings forecast after a strong first-half performance at both its telecoms and retail arms and said it was on track to split in two by the end of March 2010. With the lucrative Christmas shopping season around the corner, things are looking rosy for the telecoms company as they ring in the New Year in style. I’m not a man for puns but I had to throw that in there.
• BHP Billiton’s CEO Marius Kloppers says demand from China’s steel sector remains surprisingly strong. Annual contract iron ore price talks between the world’s biggest miners and steelmakers are getting underway; Kloppers’ remarks may help boost expectations that miners will push for a sizable increase in price.
• ING may have wished it choose a different day to raise cash as the Dutch bank’s $11.2 billion Rights Issue came in at a 52% discount today amid a plunge in global markets sparked by Dubai’s debt crisis.
• The Dutch Supreme Court found that Goldman Sachs, ABN Amro and Internet provider World Online misled investors during World Online’s 2000 initial public offering, via a prospectus that didn’t mention its CEO sold discounted shares in advance. A shareholder group says investors lost €2.3bn and calls for damages. Probably nothing more than a slap on the wrists for Goldman.

And Finally… The World’s Largest Shopping Centre, In Guangzhou China, Is Almost Entirely Empty