Oil Technicals

The Financial Markets - 18 June 09

• The World Bank, in its quarterly update, raised its forecast for 2009 Chinese GDP growth to 7.2% from 6.5% previously. The bank welcomed an unfolding surge in government-influenced investment although noted: “it is unlikely to lead to a rapid, broad-based recovery… given the current global environment and the subdued short-term prospects for market-based investment”. It reports that this may occur early next month.
  
  
• Japan’s Tankan’s main diffusion index for manufacturers improved 19 points in April to -50, an improvement from the record low of -78 in March. For non-manufacturers, the index rose to -31 from the previous low of -44.
  
  
• Citing analysts from the Japanese defence ministry, the Yomiuri newspaper reports that North Korea may launch a long range missile that passes over Japan’s Aomori prefecture.
  
  
• Mervyn King gave a sceptical assessment of the state of regulatory and supervisory reforms. King said it is important to prevent too-large-to-fail institutions, or force them to divest, but he said warnings such as these were habitually ignored. King also said it was too early to reverse extraordinary policy stimulus, but not too early to prepare the exit strategies. He reiterated the recovery could be protracted, while Darling opposed Brown’s calls for higher social spending. However, the bond market’s best friend, Blanchflower writes a typically downbeat article in the Telegraph.
  
  
• The British Chambers of Commerce forecasts a contraction of 3.8% in UK GDP this year and see only a muted recovery in 2010. The group notes that the worst of the recession is probably over and output would likely turn positive in the fourth quarter of this year, although “recovery was not guaranteed”.
  
  
• Robert Shiller has an interesting comment on house prices in his latest Project Syndicate column. “There is a lot of misunderstanding about home prices. Many people all over the world seem to have thought that since we are running out of land in a rapidly growing world economy, the prices of houses and apartments should increase at huge rates.” He says this is wrong. There is no shortage anywhere, and the sobering truth is that the crisis was substantially caused by speculators who misunderstood the factors causing the price increases.
  
  
• Comments from Irish PM Brian Cowen yesterday that the Dail vote on NAMA could be in September gave investors an excuse to engage in some profit-taking on Irish bank shares after a phenomenal run up. The market was previously working off the assumption that the vote would take place in July. This slippage in the proposed timetable is unhelpful as it delays the possible badly needed rights issues and introduces some element of political risk as the governments majority has recently been shaved by the loss of two by-elections.
  
  
• Stock in the news today. Cadbury shares are up after reaffirming its full year guidance. Xstrata are also up after broker upgrades from both Citigroup and Morgan Stanley (the stock was down 10% yesterday). Rio Tinto is under the kosh though after news that is plans a share sale to raise $15.2 billion via a discounted rights issue. Don’t you just hate being diluted.
  
  
• These guys personally are the US’s fourth largest creditor.
  
  
• And it’s good to know that all that stimulus money is being spent wisely. Or Not. Senator Coburn of Oklahoma produced a report about wasteful stimulus projects.
  
  

Chinese Whispers