Now let’s get this straight: Citigroup, the US banking giant that has been rescued at least three times by the American Government, most recently just a month ago, is now the catalyst for the rebound in sharemarkets around the world?
Stranger things may have happened, but I can’t think of them.
A memo to staff around the world saying the bank had a profitable January and February (no mention of write offs etc) from CEO, Vikram Pandit set up the surreal picture of a Citi-inspired global rally.
Wasn’t it Citi’s woes over the previous month that had re-ignited the fears about the stability of financial markets and banks once more?
The rally fizzled out overnight with small falls and gains on most markets. Poor economic news from Asia (China and Japan), Europe (Germany, the UK and France) returned to the fore.
That news reinforced the IMF which joined the World Bank in forecasting an actual global recession with growth around the world in 2009 being negative.
“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes. Continued deleveraging by the world’s financial institutions, combined with a collapse in consumer and business confidence, is depressing domestic demand across the globe," IMF head Dominique Strauss-Kahn.
"World trade is falling at an alarming rate, and commodity prices have tumbled,”
So the bank 36% owned by a Government desperate to staunch the bleeding among the country’s tottering financial giants (Also known as The Zombies) is the catalyst for a 5% plus surge around the world and a drop in tensions in credit markets which had flared in recent days.
There’s an element of catch up here, thanks to speculative interest and solid Chinese buying, the likes of copper and corn among the commodities have risen in recent weeks, or rather, not fallen more sharply.
But oil has been the stand out: up 50% at one stage this week on its 2009 low in January as all the talk of OPEC cutting output and some big speculative plays work their magic on investors.
Now the idiots among analysts, who confidently asserted that we would see oil at $US200 a barrel last year, are back whispering oil at $US60 a barrel. Anything to get trading revenues and fees higher for hedge funds, exchange traded funds and other short term investors.
The Financial Times Lex column cautioned "investors should not lose their heads"… Citi having a bumper top line is nothing to get excited about. That “profitable” remains unquantified."
How dare they rain on a bounce!
Here in Australia our market started well and held up most of the day, as did struggling Japan, which will get a couple of nasty reminders today and tomorrow of the slump with financial figures for 4th quarter growth and January’s industrial production figures. Both were record or near record falls.
Also in Japan a big real estate investment trust promoter has failed with debts of $US1.7 billion in the third biggest corporate failure so far in 2009. The Philippines revealed a 41% drop in January exports to an 8 year low. Ouch!
German industrial orders plunged in January, as did French industrial production. The UK economy is still contracting, according to the country’s senior think thank.
Investors here will have to deal with the February jobs figures later today as well.
Malaysia has joined the list of countries announcing a second stimulus package. It revealed a huge stimulus package; $US16 billion over two years and much more than any analyst had forecast. The first stimulus package in Malaysia was just $US1.7 billion.
In The US Fed chairman Ben Bernanke showed he still understood that Citigroup’s claims to be back in the game were a bit shaky. In a major speech he said the current situation wouldn’t be resolved until the US financial sector, especially banking, was stabilised. He called for better and more streamlined regulation within the US and globally..
"Until we stabilize the financial system, a sustainable economic recovery will remain out of reach. In particular, the continued viability of systemically important financial institutions is vital to this effort," he said in his speech.
There are some on Wall Street who now think that’s all for someone else to solve: they sniff a rebound, one the market has been looking for since late last year and tried to run through January until more fears erupted about banks in America: specifically (you guessed it) Citigroup and its fell zombie, Bank of America.
A total of 17 small US banks have failed this year (the latest happened last Friday in Georgia), major US banks are being stress tested by regulators to see if they can withstand a crunching recession deeper than what we have now (unemployment at or above 10% is said to be one the tests).
But all this was ignored as the Standard & Poor’s 500 Index, which had closed at a 12-year low on Monday, jumped 6.4%, with the Dow and Nasdaq soaring as well.
So what sparked all of this? Well, the careful leaking in late Asian trading of a memo sent around the world to Citi’s 300,000 people late on Monday
