Can We Please Just Have Some Direction?

Having treaded water for most of yesterday, the market took inspiration from the AMEX figures and climbed 2% in the last hour of trading. Unsurprisingly financials led the way, up 5.5%. We’re fallen a bit since and are now back to the levels of where we went home yesterday. This market is really struggling to move one way or the other.

While AMEX was up 12%, it is interesting to note the write off rate rose to 8.8 percent in March from 8.6 percent in February and 8.1 percent in January. Some of the AMEX losses were offset however by the sale of previously written off loans to a third party. The number coming out of Capital One was particularly ugly. The February annualized rate of 8.06% jumped by over 1% month-over-month to 9.33%. This is a worrying trend not just for the individual companies but also for the credit card securitisation market. Given that credit card delinquencies tend to rise with the unemployment rate, which has further to rise, we can expect these numbers to maintain their bearing.

Elsewhere, China fell for the first time in six days after posting a Q1 GDP figure of 6.1% vs consensus of 6.2%, the weakest in almost a decade. Also, China is no longer a currency manipulator. Fact. A backtrack from the Administration on this one. Given everything that’s going on, it’s probably not the time to be accusatory and pushing through exchange rate reform. In real terms, and this seems to have been important in the decision, the RMB has appreciated while many other emerging currencies have depreciated.

So where to for the market? We have JPM reporting today and Citi and GE out tomorrow. These, along with the housing starts and jobless claims will be the highlights and potentially give us some much needed direction.

One interesting thing I did read this am was from DB’s Jim Reid who noted the similarities in equity markets now to those seen at like points in 2007 and 2008. In 2007 the S&P 500 bottomed out on March 2nd and rallied 13% into mid July before approaching these lows again a month later. In 2008 the Q1 low was on March 10th before a 12% rally into mid May, which was then followed by a subsequent fall of -37% into year-end. In 2009 the low (so far) was seen on March 9th before the current 26% rally. So these three rallies started from a similar date, and although the percentage rise has already been far higher in 2009 the actual increases in points have been similar. In 2007 it was a 180 point rally to 1553, in 2008 a 212 point rally to 1427 and so far in 2009, a 175 point rally to 852. When you get to these lower levels the percentage swings are probably going to be higher. So March has been the start of a 2-4 month rally over the last two years without it impacting the longer-term trend. So will it be a history repeating sell in May and go away or are we now breaking the cycle? I’m going with the former. SP