from MacroScope:
Lehman plus 365 – and interactive
The anniversary of Lehman Brothers' collapse on September 15 will doubtlessly bring with it vast numbers of stories about what it all meant. It was, after all, the largest bankruptcy in U.S. history, a marker for the near collapse of the financial system and the trigger for government to pump trillions of dollars into economies to stave off another Great Depression.
We at Reuters will be analysing the fallout, of course, in the traditional way. But we have also launched a special web documentary and interactive timeline to mark the event. Pictures, video, and text all combine -- sometimes poignantly -- to chart the year of upheaval since the momentous day.
Quite inconceivable to the founders of Lehman some 158 years ago. But then again, so probably was the collapse.
You can see "Times of Crisis" here.
In the meantime, see also our exclusive interview with Richard Fuld, who as former CEO of Lehman Brothers was blamed for the collapse of the bank, in his riverside country house in Idaho.
The Big Five: themes for the week ahead
Five things to think about this week:
RESULTS RUSH - The early wave of Q2 earnings last week prevented any major risk shakeout but there are plenty more results this week, including from banking, technology (Apple, Microsoft), and other sectors (Lockheed Martin, Coke, McDonalds). Investors with bullish inclinations will be looking for the VIX to stay subdued after it fell last week to lows last seen in September 2008, especially if more pent up cash is to be released from money market funds. Bears will be thinking that what might be the S&P’s best weekly performance since mid-March could be setting the market up to be more sensitive to bad news.
BANKS – IS THE BEST PAST? - It is hard to see how bank results this week can top the boost which Goldman and JPM gave stocks last week. More of a mixed bag is likely with the U.S. slate including Bank of New York Mellon, Morgan Stanley, Wells Fargo, Capital One, and American Express while Credit Suisse will be the first major European bank to report. Defaults and delinquencies will be in focus for banks more exposed to the retail sector — both for what it means for their outlook and for what it bodes for household solvency and spending.
DRILLING DOWN - The breakdown of company results this week (ABB, Texas Instruments, Caterpillar, DuPont, Boeing, 3M) will show the extent to which the inventory rebuilding story, which has helped lift world equities almost 40 percent from their March lows, can offer more sustainable support to stocks in the weeks and months ahead. Earnings this week will be closely scanned to see how inventories are stacking up verus orders. How deeply firms are cutting into costs to defend profit margins, as well as their business investment plans, will be key for unemployment and other macroeconomic data.
FLASH IN THE PAN? - Flash PMIs will show whether the positive surprise of the German orders and output data was a flash in the pan for the euro zone, and whether Chinese growth is generating orders in key euro zone countries. British Q2 GDP — the first out of any G7 country — will show the relative strengths and weaknesses of domestic demand, exports and inventory components and it will be particularly interesting in the UK’s case to see just how supportive sterling’s past slide has proved for net trade.
QE STEER - Minutes from the Bank of England’s last policy meeting and congressional testimony from Federal Reserve Chairman Ben Bernanke should give a clearer steer on where quantitative easing programmes are heading. Key questions investors want answered are why the BoE deferred making a firm decision on whether to extend QE beyond August, and whether the Fed will increase its bond purchases. Government bond markets will be particularly sensitive and signs that central bank appetite for buying government debt is cooling — perhaps because of concern over long-term inflation — could trigger heavy selling, particularly in an climate of strong U.S. bank earnings and rebounding equities.
The Big Five: themes for the week ahead
Five things to think about this week:
STALLING RALLY - The global equity market rally has stalled in June and is threatening to go into reverse. With this week effectively the last full week of the second quarter, the temptation for many funds to book profits on such a lucrative quarter will be high. Any knock on boost to volatility would pose more risks for some of the trades that looked the most attractive in a lower volatility environment, such as cyclical versus defensives plays, emerging markets, and foreign exchange carry trades.
POLICY, SUPPLY RISKS FOR BONDS - How the U.S. Federal Reserve will respond to the interest rate market gyrations of the past month has been a key market talking point. Questions centre on whether it will expand the size of buybacks, whether there will be any change in the length of time the buyback programme lasts, whether the central bank makes any effort to unwind the rise in bond yields seen in the past months, and whether there will be any talk of an exit strategy. Another risk to the front end will be the Treasury refinancing, which resumes after a week of no supply and will be concentrating on the shorter end.
WHAT COLOUR ARE THE SHOOTS - This week’s data will show both whether the inventory rebuilding that was priced in over recent months is actually materialising and whether there are any other drivers of economic activity out there. The flash PMI in Europe and sentiment indicators will be particularly relevant in deciding on the latter issue, with consumer and income data out from both sides of the Atlantic providing an additional window on how domestic demand is shaping up.
CENTRAL BANK CASH - There is potential for significant take up at the ECB’s first one-year tender this week and some are speculating that the injection of large amounts of money into the market could drive down short end rates sharply. Most recent anecdotal evidence suggests firms are still facing tight credit conditions but confidence in financial stabilisation is a pre-requisite if banks are to lend on. This is leading to speculation of where else the money might be parked in the interest rate or fixed income universe. There are also question marks over whether any of the money might leak outside the euro zone — and what, if any, are the potential FX implications of such seepage.
EMERGING MARKET RISKS - Higher volatility spells underperformance in the emerging market universe and has raised questions over the risks in individual countries — e.g. Turkey’s IMF deal; Latvia’s political difficulties in winning acceptance for budget cuts; the possibility of the Iranian domestic upheaval gaining market attention; and ructions within the Saudi banking sector. The shifting sentiment suggests potential hurdles for heavy third quarter corporate and government refinancing needs, especially in central and eastern Europe, not least given that the heavy issuance plans of better-rated developed market sovereigns pose crowding out risks.
