The devil is always in the detail … or in this case lack of it.
After a period of relative stability, financial markets have resumed the risk aversion trend as the announcement by the new US administration on the latest plans for the bank bailout still lack anything of real substance.
Stock indeces reveal investors’ concerns, with the Dow falling close to 400 points immediately following Geithner’s speech. The fact that Obama didn’t even seem to want to be there stood beside him to provide support for the measures clearly set nerves jangling. In both the US and the UK, senior bankers have had to endure the humiliating experience of finding themselves in front of committees and apologising for bringing the global financial system to its current state. As we once again approach nearly double digit percentage losses for global stock markets year-to-date and there is still a feeling that the people in charge are still not really sure what to do beyond cutting base rates, there seems little reason to feel optimistic for a short term rally.
Credit risk reflects this mood, with there having been significantly more corporate ratings downgrades in January 200 than any January in the last decade. When even sovereign ratings of the likes of Portugal and Spain are coming into question there is a real need to start looking at the underlying corporate exposure. At the Emerging Market end of the credit spectrum this week has seen heightened concern for the plight of countries such as Ukraine and Kazakhstan. One article even stating that potentially as much as 70% of companies in Kazakhstab are on the verge of bankruptcy.   The default risk premium of both of these countries is at all time highs.
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