17/2/09

The Nikkei dropped 104.66 points to close at 7,645.51 this morning. Stocks spent the entire session in the red as investors worried that dwindling property demand will push more developers into bankruptcy and increase bad loans at banks. Mitsubishi UFJ Financial Group, Japan's top lender, fell 4% while Mitsui Fudosan and Mitsubishi Estate, the nation's biggest developers, both lost more than 5%.

The Hang Seng plunged 510.48 points to close at 12,945.40 this morning, its worst session in five weeks. China Merchants Holdings (International) Co, the investor in ports moving a third of China's containers, sank 5.8% after the Shanghai Securities News said traffic at Chinese ports fell in January. HSBC Holdings slid 2% after CLSA Asia-Pacific Markets speculated that the bank may need to raise capital and cut its dividend.

The FTSE 100 is 34.92 points lower at 4,099.83 this morning. Land Securities slides 4.4% after confirming discussions over the "merits" of a new rights issue. The move follows competitors British Land, which is hoping to secure £740 million, and Hammerson, which last week said it is aiming to raise £584.2 million. Legal & General reverses yesterdays decline, climbing almost 12%, after saying it will double its credit default reserves to £1.2 billion. The insurer also said it will maintain its 2008 dividend, although it is likely to decrease the growth rate of its dividend policy. Intercontinental Hotels adds 0.5% after meeting 2008 profit forecasts.

Petrol prices fell 3.2 percent during January but have edged up again in the latest weeks. The cuts announced in gas and electricity prices are somewhat smaller and are occurring a little later than anticipated. So far, we have had announcements from Scottish Power and British Gas, which mover to lower their gas prices by 10 percent but made no change to electricity prices. HSBC have assumed that the other utility companies will similarly cut gas prices 10 percent - which will take effect by mid March - but make no changes to electricity prices. This has raised their expectations of CPI inflation, but the path of RPI is broadly unchanged as they have factored in a higher degree of pass-through of interest rate cuts to final mortgage rates. There is a chance that inflation prices are a little more resilient over the next couple of months as sterling's decline limits the extent to which firms can react to depressed consumer demand by lowering prices. Indeed, the ONS found that only around two thirds of the VAT cut had been passed on in December.

UK DCLG house prices (Dec) 09.30 gmt

The DCLG house price index is the last of the house price indices to be released for December, so tends not to be as significant for the markets as the Nationwide or Halifax releases. House prices on the DCLG measure are holding up significantly better than implied by other indicators. This is because this index is value weighted, and so is more heavily influenced by sales in London and larger properties, where the price declines so far have been smaller.

US Empire manufacturing (Feb) 13.30 gmt

January's Empire index rose to -22 from -28, but the key activity measures were mostly unchanged with shipments at -13, new orders at -23, and employment at -26. On the positive side, the national ISM manufacturing index also improved by 2.7 points up to 25.6 in January. February's Empire manufacturing index is expected to increase by about 4 points, up to -19.

US Net TIC flows (Dec) 14.00 gmt

Foreigners have been net sellers of US long term securities in four out of the past five months. Net long term TIC outflows are expected to be USD20bn in December. The selling has been most apparent in corporate and agency bonds, but the November release also showed a net USD26bn sale of Treasury bonds and notes from the foreign official sector. These sales have been offset by increased foreign purchases of Treasury bills and increases in US banks dollar denominated liabilities.

US NAHB housing market index (Feb) 18.00 gmt

The last three months were all record lows for NAHB homebuilder optimism, going back to 1985. In January, the index fell to 8 from 9, as the index on present sales fell 16 percent to 331,000. Only the December pending home sales report showed some good news, rising 13 percent in the Midwest and South.