US President Barack Obama Hits London

Posted on | March 31, 2009 |

US President Barack Obama arrives in London today for a summit with the Group of 20 major economies on Thursday and will no doubt have the economic crisis at the top of his agenda.

Of course, for investors the economic crisis is rarely anywhere but at the top of the agenda, along with the key guessing game of when financial conditions will to stabilise.

‘There’s no question that current economic conditions are weak,’ said Rick Meckler, president of LibertyView Capital. ‘But what investors keep hoping to hear is evidence of a bottom – not necessarily that things are getting better right now, but that they’re not getting any worse.’ [1]

Wall Street opened in positive territory this afternoon, rising 54 points, or 0.7%, to 7576 in early trading after a promising stock market performance in Europe this morning.

The broader S&P 500 Index was also rallying, gaining 0.9% to 795 by 3.30pm (London time), led by Lincoln National, the insurer that is seeking $3 billion from the US government. Lincoln jumped 18% after announcing that it will repay $500 million on April 6. US banks were also part of the rally, with Bank of America (+7%), JP Morgan (+4%) and Citigroup (+7.8%) all going well in early trading.

Mr Roubini, who predicted the current economic crisis back in 2006, added that, ‘This is not a robust recovery, it’s a shaky recovery in the stock market… There will be negative surprise in earnings and more trouble in financial markets.’

US Treasury Secretary Timothy Geitner announced a series of stress tests on 10 February, to be carried out by teams from the Fed, looking into the health of 19 of the biggest US banks. The results are due in April. ‘The fundamentals of the macro are going to trump everything else for the banks… It’s (the stress tests) not going to resolve the problem that that institutions are still effectively insolvent,’ said Professor Roubini in reference to these tests.

Economic data released this afternoon would appear to be in agreement with this glass half-empty viewpoint: the S&P/Case-Shiller home price index showed that US house prices fell by a record 19% in January from a year earlier, worse than had been anticipated by analysts. [2]

The Chicago PMI Index also disappointed, dropping to a level of 31.4 in March from February’s 34.2, and failing to match the level of 34.3 that had been anticipated by analysts. [3]

US Consumer Confidence figures were a little better, though, creeping up to 26.0 this month from an upwardly revised 25.3 in February. February’s original figure of 25 was an all-time low.

These figures failed to slow the rally, however, as stock indices around the world have pushed higher as the afternoon has progressed. By 4pm (London time) the FTSE 100 had climbed 148 points, nearly 4%, to 3912.

[1] Source: Reuters News (31 March 2009)
[2] Source: Based on a survey by Reuters (31 March 2009)
[3] Source: Based on a Bloomberg survey (31 March 2009)

By Peter Martin - Director, Client Education and Training of at IG Index

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