Global Investing

Five things to think about this week:

REBOUND
- The global stock market has lost some of its spring, although it still managed a seventh straight  week of gains last week. A serious pullback has yet to be seen and the VIX is managing to hold fairly close to the sub-40 lows. Faced with a deluge of earnings, investors are picking their way through a mass of mixed earnings news and forecasts and displaying a more symmetric reaction to good/bad news than in past months.

STRESSES
- The U.S. financial stress testing timeline will put the focus back on the health of financials. Results, which are expected to point out banks’ varying ability to cope with a severe recession, are due out on May 4 and the financial industry is already flagging the risks of failing to spell out what would happen to the weaker links in the chain. Stress test results and any rumours or leaks before publication could prompt volatility.

DATA FLOW
- The release of advance Q1 U.S. GDP will offer investors a clearer sense of whether worst is in the past and could point way to what might feed any eventual “green shoots” of recovery. In the euro zone, national and regional sentiment indicators will point the way to firms’ and consumers’ mood at the start of Q2.

MONETARY POLICY
- Central bank meetings will be held in the U.S., Japan, and New Zealand. RBNZ is the only one of three with room to cut rates and there is some speculation that a more aggressive gesture could be on the cards to rein in markets, which are pricing in New Zealand rate hikes for next year. With the ECB due to outline any “unconventional” policy steps it might take on May 7, investors will scrutinise ECB officials’ comments for insight on what the consensus is building around.

FISCAL SPILLOVERS
- Fiscal stimulus in China looks to be filtering through to the real economy rather faster than in the developed world, prompting banks to upgrading China growth forecasts and investors to assess whether there will be a knock-on beneficial effect for commodity-producing emerging markets, which had suffered disproportionately due to the slump in global demand. Such a spillover effect is expected to especially benefit the Russian and Brazilian markets which have already rebounded.

Trying to second guess reaction to news during this financial crisis has been a fraught exercise and the U.S. Treasury may have a few advisers playing game theory to assess the impact of results from bank stress tests.

The tests are an attempt to determine which banks can survive more trouble, and who can’t. And how big any balance sheet holes might be. The results are due out on May 4.

If the results look too good, the process will look like a whitewash. Too negative, and it will destabilise still-jumpy markets. Yet showing up problems at one or a few banks could hang them out to dry.

Five things to think about this week:

EARNINGS DELUGE
– A heavy U.S. earnings week looms and the European reporting calendar is picking up. While more banks and financials will be reporting (e.g. Bank of America, Bank of New York Mellon, Credit Suisse and a trading update due from Barclays), results will start flowing from a wider range of sectors in both the U.S. and Europe (ranging from Apple and IBM to Glaxo SmithKline, Du Pont, Coca Cola). Health of the broader economy on display.

MACRO SIGNALS
– The more mixed signals that earnings send, the more investors are likely to look to macro and other indicators as a cross-check of whether the stock market rebound is sustainable and whether the economy is anywhere near an inflexion point. Flash PMIs and Ifo for April will give an early indication of how economic activity was faring as Q2 got underway. Trade data from Japan is also due for release.

FISCAL HELP
 – The UK budget on April 22 is expected to issue grim forecasts and extend a helping hand to some sectors, such as autos. The fiscal presentation will keep the spotlight on the limited room for budgetary manoeuvre in Britain and elsewhere with past bailouts and support measures leaving tough decisions to be made on public spending, taxes, etc.

Five things to think about this week:

-- IS RATE OF ECONOMIC CONTRACTION SLOWING?
Some economic reports have been pointing to a slowdown in the pace at which economic conditions are deteriorating -- eg U.S. home sales data; auto sales data; PMIs; UK lenders seeing improved credit availability in Q2, and PMI data. While job destruction is continuing apace, signs that inventories are being drawn down leave room for hope for those inclined to look for the silver lining, or even seek a bottom to the current downturn.

-- REBOUND MOMENTUM
Investors are wondering whether equity markets can extend a solid Q2 start now that major fiscal stimulus announcements, rate cuts, QE  (in most developed economies), the London G20 meeting, and other big milestones are largely behind them. A sustained narrowing of corporate spreads, the VIX clearly breaking out of ranges that have held post-Lehman, and any shift out of defensive stocks are just some of the signals that would suggest that the rebound has legs.

-- QE CLUB
The European Central Bank opted to wait another month before deciding on whether to join the QE club and unexpectedly left itself room for a further refi cut. By contrast, curveballs are unlikely from Bank of England and Bank of Japan policy meetings given their quantitative easings are under way. The relative performance of their respective sovereign debt markets is in focus as a result, as are the inflation outlooks being priced in by index-linked paper at a time when some are pondering the longer-term fallout of QE policy. The Reserve Bank of Ausstralia also meets this week week but markets finding it tough to call the outcome.

Japan, slightly sidelined by the U.S.-UK "special" relationship and the Franco-German alliance at the G20 summit, is keen to stress the country can offer lessons to be learned from the country's banking crisis in the 1990s.

Here's a re-cap of what happened. In 1992, then-PM Miyazawa warned of a financial crisis unless banks were recapitalised using public funds now. Yet no action was taken. Between 1995 and 1997, staggering 5 financial institutions failed, forcing the government to inject public funds into 21 banks in 1998. Then two major banks were nationalised, then the government injected additional capital into 32 banks.

U.S. Treasury Secretary Timothy Geithner experienced the crisis himself as a financial attache at the U.S. embassy in Tokyo in the 1990s.

Some more bits and bobs to capture the current mood among investors.

–  So far, 2009 is worse than 2008 for stock investors. MSCI‘s main world index is down around 17 percent in January and February.  A year ago, it had lost around 8 percent.

– Eastern and central Europe are the new worries because of bank exposure to troubled economies.  ”The travails in the east, like the vampires of folklore, are sucking the lifeblood from European markets and investor sentiment,” State Street suggests.

– Cross-border flows into the euro zone hit record lows in February,  the same firm says.

Attention Wall Street whistleblowers: your banking job might be at risk, but here’s your shot at Hollywood stardom.

The Academy Award-winning filmmaker is looking for “brave” financial industry insiders to help him make his next film which will focus on the financial crisis – or what Moore calls “the biggest swindle in American history.”

“Based on those who have already contacted me, I believe there are a number of you who know “the real deal” about the abuses that have been happening. You have information that the American people need to hear, “ Moore said on his website.

Bank executives beware. Turn your microphones off during what are likely to be stormy shareholder meetings this year.

Insults are likely to fly at many bank AGMs this year from shareholders angry at their board for losing billions, sending shares crashing, making ill-advised purchases or for their role in the global economic crisis. Bankers are unpopular after more than a year of grim news.

But an unnamed director at Santander lacked humility this week.  After heated questions from the floor about the Spanish bank’s purchase of U.S. lender Sovereign and its exposure to the alleged Bernie Madoff fraud, some shareholders applauded a critical comment.

It’s the poorest country in Europe and its main export is alcohol but it can still beat the world’s largest economy when it comes to financial muscle. Yes you’ve guessed it, Moldova trumps the United States in the Banker magazine’s 2009 World Financial Health Index.

Caution is the watchword of the magazine’s latest index, which is careful not to reward financial risk-taking. According to the Banker’s new model, Moldova, Chile, Bolivia and Peru are less likely to be affected by the global financial storm than the U.S., UK or Japan.

Small is beautiful when it comes to debts and that’s where Moldova wins. Its debt is $763 per capita, compared with the UK’s $171,000. Its banks have only extended loans worth 35 percent of GDP, while in the mighty U.S., the figure’s 230 percent.

If there’s one thing you don’t want to be, it’s the next Iceland.

Since its currency, colossally indebted banking sector and economy collapsed in spectacular fashion in October, the country has become a byword for an economy that has truly hit the rocks.

Within weeks, banking problems and currency falls meant Hungary was being hyped as a “second Iceland”, at least until a joint International Monetary Fund and European Union rescue package restored some stability.