Market Commentary
Obviously, with the market's fixatation on Lehman, the consensus is that a LEH deal is likely to happen this weekend (generally expected); leading contenders BofA+JCFlowers+CIC (Chinese Soverign fund)
Financials continue to be the limelight - specifically LEH, WM, AIG
With the deteriorated environment around us ("EM blowing up", "financials blowing up", "AIG stock down", "Merrill stock down") it is hard to feel optimistic.
(Note: only when everyone is bear-ish, is that an indication we are reaching the bottom.. so who's game to join me to plough their money in right now?)
Overall summary of US economic indicators,
A) Pending home sales worsened, initial jobless claims and continuing jobless claims up, unemployment up
B) Import prices, Producer prices fell -> petroleum story
C) Retail sales fell unexpectedly
Key Risks/Scenario
A) Hedge fund losses (see HFRI indices: Relative Value Strategy, -13% worst performing strategy ytd) might have led to another round of deleveraging this week
Another related story: RAB Capital might be winding up their Special Sit fund if they don't get support from investor
B) Emerging market feels the heat. If anyone has been following Russian equities, you might have noticed that RTS fell 22% mtd. or -48% from high in May.
Spreads on Turkey and Russia has been widening.
C) Dollar Strength
Not really a reflection of strength in the US economy, but more so an indication of weakness elsewhere
Interesting Chart:
Short SXEP vs Long SXPP
With China's thirst of materials declining, this trade may start to collaspe as we have already seen this week. SXPP fell 9% this week
Eric Tan, London
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