Markets are still highly volatile and continue to fluctuate heavily whether it was the dollar that started the year with the upper hand or stocks that continue to swing between gains and losses. Yesterday US markets did not withhold the optimism that was defused in markets to end lower on concerns over earnings which of course as the economy continues to dwindle are not to be any better!
Today is the day the services sector takes the stand as data are queued from Europe and the US to reflect the deepening agony for the sector. With horrific financials performance sagging sales and abandoned leisure spending keeps taking the sector south which accounts much on consumer spending.
For Germany and the EU the final PMI Services estimate for December is expected unchanged at 46.4 and 42.0 respectively, while the EU composite is also expected unrevised at 38.3 yet assessing the downside revision to the manufacturing PMI that is subject to revision to the downside as well unless the services sector manages to pull a surprise in the holiday season and reflect some sense of European consumer resilience especially after the Bloomberg Retail PMI did provide a slight better insight that sales this December were slightly boosted amid the recession with holiday sales though not sufficient to its historic levels.
As for UK the misery is much deeper and continues to swell the services PMI is expected to show the continued contraction for the sector as expectations for December sank further to 39.0 from 40.1 a new historic low for the sector, which accounts for 3/4 of the economy and shows the deepening blues for UK.
House prices according to Nationwide have ended the year in December with an abysmal 15.9% drop after they declined yet again on the month with 2.5 percent. The housing sector is walking the line into deep depression as the economic recession deepens and the availability of credit is confined and both are the driving factors to the continued decline. Yet officials in UK do not see their housing problem deepening as much as the US as they know that historically demand was higher than supply in UK which will lid the fall and sector will recuperate directly with the economic performance as soon as Britons regain confidence and the economy looks better.
Yet all in all the downbeat data that continues to stream from UK alongside clear signals of subdued price pressures whether from commodities or properties prices and rising spare capacity all fuel expectations of a deeper rate cut to be seen this Thursday from the MPC that UK calls on them to yet halve rates again to support the economy and prevent deflation!
The case is the same for the United States that is drifting deeper in recession and fears potential deflation as the economy continues to deteriorate. The services ISM is not expected any better than its manufacturing sister, as expectations is shrank further in December to 36.5 from 37.3; this adds more jitters to the number of mounting job losses to be seen this Friday according to the final figure which is the nonfarm payrolls.
Pending home sales for November are also awaited with a fall as they are projected to have dropped 1.0% after 0.7 percent fall, which shadows that sales are not close on the pace of reflecting any improvement in December either as the pending sales are the gauge used to measure the lagging sales that are still in the processing phase to a sealed deal and as they decline they assure that not much is seen in the sector.
All in all the services are to be the highlight and markets are to focus still on the minutes of the last Federal Open Market Committee meeting which was historic to us all as we have seen the feds take rates down to its historic low levels near zero addressing a Target Range of 0.25-0.0%!
Today the minutes are to be assessed crucially and more thoroughly than any time, as all markets are waiting for the clues to see what the next move for the feds is especially that they are out with rates and the speculation over the extent of quantitative easing measures is still roaming the market.
The feds aim is to flood the markets with liquidity and assure that money market rates and spreads near their lowest as they drive their financial market into the zero rate policy, that assures the lowest yields on money market instruments that in role reflects on loans to the real economy that will facilitate lending again to consumers and businesses.
Markets keep focusing on bank lending rates or what is famous in the market as LIBOR, true that excessive measures by central banks from bailouts, pumped liquidity and swap lines and alongside interest rate reductions managed to pull them down, and banks are not suffering as much as they were to allocate cash to meet their requirements, yet the extent of that effect onto the real economy is the thing that is of concern and is the wheel that is moving on snail pace motion!
Rates charged on loans to consumers and businesses of all sorts are still high compared to the benchmarks and that is what is agitating policy makers, and especially loans for businesses where as they are already struggling with challenging business conditions they cant easily and economically access funds which only means they are to cut spending further and eliminate more jobs while they're at it which brings us back to square one and agitates the economic cycle to the downside.
Clearly they are the link now and the diverted steps from policy makers clear it, they are urging banks to facilitate lending and the steps and the plans created now are targeted not to the financial sector directly anymore as they are heading towards the real economy from consumers and businesses and that was clear in president-elect Obama's proposal for the stimulus which is to withhold a heavy bulk of tax breaks that directly increases the flow of credit into households and supports businesses which are to cut as well their layoffs and start moving their pace towards production and a stronger consumer base to tackle the slowdown.
The economy is a comprehensive complex that does not manage to withhold as an aggregate entity if some sectors are faltering, the balance needs to be found and consumption is the key aspect that ties all the aspects together and that is the target for adopted policies right now support spending to find the bottom to this harsh recession, and today it is all about Bernanke and what he and his committee had to say on the historic low interest rates...