Current Futures: Dow +52.00, S&P +5.60, NASDAQ +3.75
European Trade: European shares opened below the breakeven line, once again, as equity traders remain skeptical about the efficiency of the new financial rescue plan. Asian shares also closed lower, while the U.S. futures turned positive overnight.
Bad news came out of China tonight. First, a former Chinese central bank member and current head of the Chinese Academy of Social Sciences, Mr. Yu, said the U.S. should guarantee the Chinese holdings of foreign debt. Currently, China is the biggest holder of U.S. debt, totaling $682 billion. Ironically, a large bulk of the U.S. deficit comes from Chinese based imports.
If the Chinese government changes its strategy, and eventually stops buying Treasuries, the Fed might have another headache in the following period. Certainly, the Treasury will have some hard times finding buyers for its debt, which means the Fed will have to ultimately act as one. As such, the Fed will have no other choice than to print more dollars, something that will devalue the greenback.
Continuing with news from China, exports declined by 17.5% in January, the biggest slump in the last 13 years. More than anything else, this shows that global trading is drying up, on very poor demand coming from the world’s biggest economies. However, the Chinese economy is very likely to keep its huge trade surplus, since, at the same time, Chinese imports dropped by a whopping 43.1% from one year earlier. It should also be noted that a rising number of analysts question the Chinese reports, mostly referring to the methodology of calculating the numbers.
In Switzerland, 2008 was a rough year for the banking sector. The two biggest Swiss banks, UBS and Credit Suisse reported huge losses, on bad investments. In the fourth quarter alone, Credit Suisse lost 6 billion Swiss Francs, or about $5 billion. Its biggest rival, UBS, lost a whooping 19.7 billion Swiss Franc, or $17.1 billion in 2008. UBS has agreed with the Swiss Government for a credit line, while Credit Swiss denied any help
In Europe, the declines were lead by the financial stocks and car manufacturers. The U.K. Ftse fell down 5.49 points (0.13%) to 4,207.59, while the German Dax declined 11.40 points (0.25%) to 4,494.14
Crude oil dropped in the last sessions of trading on lower demand outlook. Crude oil for March delivery gained $0.50 to $38.20.
Gold acted as a safe heaven in the last period. Bullion for immediate delivery rose $0.30 to $916.80.
Previous Asian trade: Tonight, the Nikkei was closed for business. The Australian S&P lost 14.30 points (0.41%) to 3,474.40.