Meltdown in Europe :Indicators point towards a worsening. Markets for the week ending 25-Jul.

Market commentary:
- Gains in financials continued as Citigroup Inc., JPMorgan and Bank of America Corp., reported second-quarter earnings that beat analysts' estimates. Investors are hopeful this may be the real thing, seeing a glimmer of hope within the financials.

European Outlook:
- German Finance Ministry reported that GDP shrank "considerably" in the second quarter and estimates to be released in August. Significantly deteriorating German business climate and outlook suggests that the economic upswing is coming to an end.
- Spain's manufacturing PMI set a new record low --> indicators point to Q2 growth around 0.2% q/q and then turn negative
- Ireland: Economic and Social Research Institute forecast that GDP growth in Ireland will be negative in 2008 at -0.4% from 5.3% growth in 2007. The Irish economy is likely to face its first recession since 1983 as the slump in housing construction is likely to wipe out all growth in rest of the economy
- The UK economy grew 0.2% in the second quarter of the year, as the credit crunch took its toll on the housing market and consumer spending. The figure is the lowest growth quarter-on-quarter for three years.

UK Banking
After a ridiculous rally in UK banks over last week's sessions from a very low level, we will soon have a better picture in the next couple of weeks as to their health.
(interim reporting period starting with Lloyds on Wednesday)
Scenarios:
A) over a year of writing off debt, market believes that they must be somewhere near the bottom
B) further credit writedowns as signaled by Citigroup cutting European banks to "underweight" from "neutral"

Interesting note:
In the four bear markets since 1973, rallies of 10 percent or more lasted an average of 54 days for a gain of 14.5 percent.
In every case, the S&P 500 fell again, dropping an average of 21.5 percent over 114 days.
The same pattern this time would send the S&P 500 to a peak in September before giving way to a slump that would continue until the start of 2009.

Eric Tan, London