Go away on holidays and the whole shebang worsens after signs of a steadying before Christmas.
All indicators are now pointing to 2009 being a tougher year than 2008. It is something of an action replay of early last year: markets slowly haul themselves back from the brink, as they have done since mid November on expectations that things won’t worsen.
Then they do and markets fall again, driven by renewed fears about bank and other financial stocks. But this time there’s concern about cars, media, technology, retailing and general industrial companies, as well as hedge and private equity funds.
Banks, finance, retailing, technology and commodities all face drastic change — on the downside. Job losses are soaring here and around the world and major companies will go bust. Nortel was the first of 2009 this week.
Stocks and commodity markets fell overnight as wave of selling hit around the world, driving stock exchanges across the globe down for the seventh day in a row in some cases. Wall Street managed a small rise on bank rescue rumours.
US jobless claims rebounded last week to more than 520,000 and US producer price inflation continued to fall in December, down 1.9% compared with the annual 9.9% surge mid year.
Initial jobless claims jumped to 524,000 in the week ending 10 January, while producer prices fell 1.9% from November to December, capping the first annual drop since 2001. And in another report, the US Federal Reserve said manufacturing in the key Philadelphia and New York regions is still falling.
Oil fell to $US34 a barrel as OPEC said that demand for its crude will fall 4.2% this year as the recession cuts demand: It said demand will fall by 1.4 million barrels to 29.5 million barrels a day. And the American Petroleum Institute said US fuel demand fell 5% in 2008, the biggest drop since 1980. Copper and grains fell, as did gold.
But there seems to be some other factors at work in the oil market.
The Financial Times reported today that while the Nymex February West Texas Intermediate contract fell $US1.88 to $US35.40 a barrel after touching a low of $US33.70 in new York during the day, the London based ICE February Brent contract fell 39 cents to $US44.69 a barrel, while the March Brent contract lost 44 cents to $US47.18. Because of crude’s heavy weighting in major commodity price indexes, the 10% fall in most of those measures since the start of year has been overdone.
But despite this anomaly in the oil market, we are back in the grip of recession fears as we were in October-mid November of last year.
General Motors sent a chill through the auto industry and US political circles overnight by forecasting a sharp fall in car sales in the US and worldwide. It now expects 10.5 million cars will be sold in the US this year, down from 13.8 million in miserable 2008 and 16.2 million in 2007. Global sales will fall a huge 10 million to around 57.5 million units. That holds out more factory closures, job losses and more government aid around the world, and especially in the US.
Tech giant, Intel, reported a 90% plunge in fourth quarter profits, but the shares were not hit as the company had warned twice in the past two months that sales and earnings were falling because of plunging demand from all consumers.
Struggling Citigroup will advance-release its fourth quarterly financial figures tonight, our time, in an effort to convince investors its still viable and will survive what now is yet another eruption of market concerns over the health of banks and other large industrial and financial groups.
The European Central Bank was dragged kicking and screaming to a rate cut overnight after its senior management spent the best past of the past month resisting calls for another cut, to match the 315 year low for the Bank of England and all time low for the US Fed. President Claude Trichet forecast the ECB could cut under 2% in March.
JPMorgan Chase lost money in the 4th quarter and for 2008. Before the result, CEO, Jamie Dimon was quoted in the FT as saying that the worst was still to come for the sector and things would continue to deteriorate over 2009. he repeated those comments yesterday in New York, warning US unemployment could top 8% from the 7.2% rate in December.
A profit warning from Germany’s Deutsche Bank on Wednesday of a bigger than expected 2008 and fourth quarter loss didn’t help, and a banking analyst’s prediction that Europe’s biggest bank, HSBC, may need up to $US30 billion in new capital shook confidence. Both banks had been seen as avoiding the worst of the crisis; now they seem to have been caught up.
Bloomberg reported that UBS and HSBC might be on the hook for some of the losses from the Bernie Madoff scam as both had acted as custodians for some of the funds involved in low tax Ireland and Luxemburg.
Citigroup shares plunged 23% in the US on Wednesday and another 14% overnight: analysts are looking for a fifth straight multibillion-dollar loss from tonight’s reports and some forecast it could be as much as $US10 billion!
The bank was also widely expected to provide details of a reorganisation of the company designed to ensure its survival; it sold its broking arm to rival Morgan Stanley this week and will get $US2.7 billion of much needed cash, and its looking to sell off high risk parts of its vast consumer finance portfolio.
Bank of America is close to receiving billions of dollars of support from the US government because losses in Merrill Lynch, the investment bank it bought on 1 January, are larger than expected. Bank of America shares fell more than 18% on the news.
Citigroup has already received $US45 billion in government funds while Bank of America and Merrill have received $US25 billion. Bank of America needs another $US15 billion, according to reports from Reuters this morning. A deal will be announced Tuesday when it reports its 2008 figures.
That news helped steady a very shaky market.
The concerns could prompt the early release of the $US350 billion second tranche of the $US700 billion of bank bailout money voted on last October in a blaze of controversy. Democrats in the House of Reps in Washington revealed plans for a $US825 billion package of spending and tax cuts.
In Canada the crisis claimed its first big scalp with Nortel Networks Corp, North America’s biggest telephone equipment maker, filing for bankruptcy.
And Canwest Global, the country’s media owner (newspapers, TV, Pay TV and TV production including the Ten Network here in Australia) warned for the second time in two months that it might be forced to sell assets because cash flow had fallen as sales and profits fell in the first quarter. Canwest warned it might breach restrictions on a $C72 million loan, part of a $C300 million bigger facility, but a tiny part of its huge $C3.6 billion debt overall burden.
In Japan, the local market plunged close to 5% after figures released by the Government showed core machinery orders fell at a record pace in November.
Japanese data showed core machinery orders fell a record 16.2% in November to a two-decade low, while wholesale inflation hit a four-year low, flagging the risk of deflation. According to media reports in Tokyo, Nissan Motor Co the country’s third-largest car maker, is set to post an annual operating loss. the company revealed this week it had put all its US factories on an indefinite four day working week.
In the US, Gannet, the country’s biggest newspaper owner, said every employee, from the CEO down, would be forced to take a week of unpaid leave in the current quarter as the fall in ad revenues showed no sign of easing. Gannett said last month that it expects its 2008 revenue to $US6.8 billion, down about 8% from last year. The New York Times-owned Boston Globe said it was offering early retirement to staff and warned that it would move to retrenchments if it couldn’t get the required 12% in job cuts.
The root cause of all of these pressures remains the depressed US market for houses, with foreclosures hitting a record in 2008 according to the monthly summary from RealtyTrac.
The group said US foreclosure activity jumped 81% last year, with one in every 54 households getting at least one filing notice. Nearly 3.2 million foreclosure filings on 2.3 million properties were made last year (these filings include notice of default, auction sale or bank repossession).
“Clearly the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami,” James J. Saccacio, chief executive officer of RealtyTrac, said in the report.
Foreclosure activity did slow in the fourth quarter overall, declining 4% from the third quarter, as moves by various governments and lenders to try and slow the process down and give owners a ‘cooling off period’ took hold. But that only had a temporary impact and RealtyTrac said filings jumped 17% percent in December from November and the rise in the fourth quarter was still near to 40% from the fourth quarter of 2007. December was up 41% on December 2007.
And foreclosure activity last year was up 225% from 2006, the year home prices began falling with the subprime mortgage crisis appearing for the first time.