A Big Cheer for the ISM Data- Now for Home Sales...

Well... that shows how much I know... I was right about one thing yesterday though. Markets were desperate for a reason to rally and Chinese and US manufacturing numbers gave them that reason. Equities up 2.5-3%, CDX in over 5bp, VIX in 2bp and longer end corporate spreads in 8-10 basis points across the board.
Euphoria lives! Whether it will last beyond the housing numbers today? Who knows? Failing that the employment numbers tomorrow could derail any good feelings. If both numbers are positive- or rather, less negative than feared- then things could be good for a while.
Ignored by the markets yesterday were several notes of caution thrown out there by regulators and forecasters alike.; The ECB sees the need to extend liquidity lifelines, a nobel prize winning economist (heaven help us) wants a huge new stimulus plan from the USA. What did he win the Nobel prize for anyway? Surely not for work in helping economies recover from a credit crisis if that’s his best idea? The head of a UK hedge fund says the second leg of the crisis is just beginning and big banks are still over leveraged. His theory is that a true measure of Tier 1 capital would include only tangible book equity and on that basis several major banks have a capital ratio of only 2%, compared with the minimum agreed of 6%. This implies leverage of 50 times on their books (I’ve always been good with numbers...).
Frankly all this is interesting and fluke for the fire for miserable gi... brokers... like me who spend too much time worrying about things. What’s my view of the most likely outcome? What it has been for a while; a long, slow, painful recovery that stays slow for a loooonnnngggg time- or maybe a very short, shallow recession that will sort itself out if it’s allowed to. No Armageddon, no Perfect solution, just a middling path.
The risks still lie to the downside, as the US housing market still worries me a lot. Banks exposure to that market is still huge and my hope is that the US government will step in if the agencies want to give all the bad loans back to the banks that originated them, which could spark more multibillion dollar write-downs and losses. That’s about the only area where I think they would need to intervene and should do so- so they undoubtedly won’t. Ho Hum...
Construction numbers from the UK today, we’ve already had house price figures, which showed a bigger drop than expected. Jobless figures due from the US- but all eyes will be on the home sales numbers at 3.00pm London time.
Happy Thursday...