Minute Detail

Yesterday’s equity rally was brought back to earth by the comments from the FOMC meeting. Talk of more QE and the Fed downgrading their estimate for economic growth conflicted with the previous rhetoric from Obama and Geithner about how the market is healing. Expectations are of unemployment peaking at around 9.5% (NB stresss test adverse scenario was 8.9%) and then taking a number of years to come back to the 5% level. The way equity markets have behaved lately seems to be pricing in a far rosier scenario. Greenspan also weighed in with his two-pence worth talking of a large unfunded capital requirement in the banks and questioning the stabilisation of house prices. Like the market, he is less upbeat than he was a week ago when he saw “seeds of a bottoming” in US Housing.

The $ sell off yesterday caught the attention of the market in a big way, and while it was a straight line move for sure, it was only a 60bps move in DXY. Given the $ has been sold against everything except the Yen over the last couple of months, why this move made such waves I’m not sure.

Jobless claims come in slightly worse with an upward revision to last weeks number, natch. That, along with S&P downgrading the UK AAA rating to negative and light volumes have conspired to to give the market a less than sanguine feel to it today. Note S&P said the UK’s debt/gdp ratio could go to 100%. It was 35% in 1997 and the US is expected to get to c70% by 2012. However, the UK has nationalised the banks, taken the hard decisions while the US have been opting for a band aid, buying time approach, so perhaps at least we have a better idea of the UK endgame.

Mark Haines on CNBC has just described the jobless claims number as “not too bad.” Whatever expectations may or may not be, these numbers are not good numbers. We’re getting better confidence numbers coming through too these days. I think people have become desensitised to the recession…but last time I tried anyway, burying your head in the sand and hoping it goes away…doesn’t work.