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January 26th Overnight Market Movers

Posted by Larry Doyle on January 26, 2010 7:27 AM |

While many eyes here in America are distracted by the ongoing political noise emanating from Washington, there are significant market moving developments with long-term implications happening overseas.

Let’s first look east to China and Japan. There are two major stories in this region:

1. Chinese banks are putting restrictions on new lending. This effective tightening of credit is a result of concerns that excessive speculative lending has created an asset bubble. The major Chinese stock index sunk to a three month low on this news. This development out of China has supported the greenback in a flight to safety.

2. Japan’s sovereign credit rating may be cut by S&P, as the rating agency believes that the ‘Land of the Rising Sun’ has limited flexibility to deal with its massive government debt load.

Moving westward, news out of the United Kingdom is good  . . . or is it?

3. The U.K. economy finally comes out of recession with a reading of a .1% increase in its 4th quarter GDP. Well, a positive is better than a negative but a reading of .1 is very disappointing when expectations were that the reading would come in at .4. Additionally, the growth was almost all driven by government assistance. U.K. Prime Minister Brown defined the economy as ‘fragile.’  I think he’s being generous.

Moving to the mainland United States, we witness blowout earnings by Apple with sales of the iPhone doubling. If only the overall economy were so lucky.

In Washington, Fed Chair Bernanke will likely be reconfirmed. President Obama will try to curry favor with his call for a spending freeze, albeit at exceptionally high levels. A Federal Reserve official offers that Congress is getting in the way of an economic recovery.

The more things change, the more they stay the same. That said, do not get complacent. There remain significant risks on our economic landscape and within our markets.

LD






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