Onwards and downwards it would seem.
After the relatively calm start to the year, this last week has seen a return to the sombre mood that we ended last year on. Stock markets have been hammered again, unsurprisingly led lower by financial stocks, with the Dow giving up 1,000 points on the week, and the FTSE just under 300. Meanwhile credit risk resumed its widening trend, with bank and sovereign risk dominating the move as yet another bank baiout has been required in the UK, this time the headline number being hundreds of billions of taxpayer’s money.
The economic data calendar has been relatively quiet, and if anything th UK numbers out this morning were not quite as bad as expected. However the negative mood continues to permeate, and with news stories heralding the nationalisation of UK banks with RBS on the brink of being the guinea pig (already 70% government owned), Lloyds TSB hot on its heels (43%), now Barclays has been heavily sold in anticipation it will go the same way. Out of the US BlackRock reported the loss of $80bn in Q4 of 2008 alone, and there seems little reason to expect anything positive to come out of the sector as a whole.
Overall we think markets will remain heavy with any pop being seen as an opportunity to sell. Volumes remain light however as the ongoing lack risk appetite does not seem about to change, and until such time as the news flow can maintain a sustained spell of positivity there seems little reason to step in and buy. That said, we do think that this is the time to begin to scan the market for companies that have a good financial balance and look able to trade through the storm, as Q2 or Q3 could mark the lows, and bargain hunters could appear.
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